One-Way Networks, Two-Way Networks, Compatibility, and Public Policy

EC-93-14

Posted: 25 Aug 1998

See all articles by Nicholas Economides

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: December 1994

Abstract

This paper develops some important concepts with respect to networks and compatibility. We note that the familiar concept of complementarity lies at the heart of the concept of compatibility. We further note the distinction between two-way networks (e.g., telephones, railroads, the Internet) and one-way networks (e.g., ATMs, television, distribution and service networks). In the former, additional customers usually yield direct externalities to other customers; in the latter the externalities are indirect, through increases in the number of varieties (and lower prices) of components. Most industries involve vertically related components and thus are conceptually similar to one-way networks. Accordingly, our analysis of networks has broad applicability to many industrial frameworks. We proceed by exploring the implications of networks and compatibility for antitrust and regulatory policy in three areas: mergers, joint ventures, and vertical restraints.

JEL Classification: L13, L40

Suggested Citation

Economides, Nicholas and White, Lawrence J., One-Way Networks, Two-Way Networks, Compatibility, and Public Policy (December 1994 ). EC-93-14. Available at SSRN: https://ssrn.com/abstract=6519

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0864 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/networks/

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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