Direct and Indirect Network Effects are Equivalent: A Comment on “Direct and Indirectnetwork Effects: Are They Equivalent?”

15 Pages Posted: 28 Sep 2012

See all articles by Jeffrey Church

Jeffrey Church

University of Calgary - Department of Economics

Neil Gandal

Berglas School of Economics, Tel Aviv University; Centre for Economic Policy Research (CEPR)

Date Written: August 2012

Abstract

Clements (2004) makes the following two claims: (i) unlike direct network effects, increases in the size of the market do not, in the case of indirect network effects, make standardization more likely, but (ii) indirect network effects are associated with excessive standardization. We show in Clements’ framework that neither of these results are correct: standardization is more likely as the number of software firms increases and when the type of market equilibrium is unique— there are only multiple networks or only standardization—there is never excessive standardization, but there could be insufficient standardization, just as is the case with direct network effects.

Keywords: network effects, standardization

JEL Classification: D43, L1

Suggested Citation

Church, Jeffrey and Gandal, Neil, Direct and Indirect Network Effects are Equivalent: A Comment on “Direct and Indirectnetwork Effects: Are They Equivalent?” (August 2012). CEPR Discussion Paper No. DP9097. Available at SSRN: https://ssrn.com/abstract=2153478

Jeffrey Church (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Neil Gandal

Berglas School of Economics, Tel Aviv University ( email )

Tel Aviv University
Tel Aviv 69978
Israel
+972 3 640 9907 (Phone)
+972 3 640 9908 (Fax)

HOME PAGE: http://www.neilgandal.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
335
PlumX Metrics