Network Markets and the Structure of Networks

Posted: 4 Nov 2000

See all articles by Roberto Roson

Roberto Roson

Ca Foscari University of Venice - Dipartimento di Economia; Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy; Loyola Andalucia University

Jeroen C. J. M. van den Bergh

VU University Amsterdam - Department of Spatial Economics

Abstract

Network markets are characterized by composite goods or services that can be obtained from alternative combinations of basic products. Examples are complex, multistage production and consumption systems, transport and communications. Efficiency in these markets depends on the net effect of the complementary and substitution relationships that exist between elementary products, which are determined by network topology and market structure. This paper examines factors that affect equilibria in network markets by considering a number of simple economic models of network markets. First it is shown how network topology influences profits and welfare under different market regimes. In particular, attention is given to price discrimination in monopolistic networks. Next evolution of networks is examined, which may occur via investment in new links by incumbent firms, or via entry of new firms in the network. It is shown that the number of competitors in equilibrium may not coincide with the socially optimal one, which in turn depends on the network structure. In order to show some concrete implications of the theoretical results two examples are presented, dealing with intermediate factors in an input-output production system, and with the trade-off between network externalities and economies of scale and density in hub-and-spoke transportation networks.

JEL Classification: L10, L20

Suggested Citation

Roson, Roberto and van den Bergh, Jeroen C.J.M., Network Markets and the Structure of Networks. Annals of Regional Science, Vol. 34, No. 2, 2000. Available at SSRN: https://ssrn.com/abstract=236393

Roberto Roson (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy
+39 041 2349147 (Phone)
+39 041 2349176 (Fax)

HOME PAGE: http://venus.unive.it/roson

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

viale Filippetti, 9
Milan, 20122
Italy

Loyola Andalucia University ( email )

Escritor Castilla Aguayo no. 4
Cordoba, CORDOBA 14004
Spain

Jeroen C.J.M. Van den Bergh

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Faculty of Economics and Econometrics
1081HV Amsterdam
Netherlands

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