The Economics of Networks: Abstract
The Economics of Networks1
Abstract
I analyze the salient features of networks and point out the similarities between the economic
structure of networks and the structure of vertically related industries. The analysis focuses on
positive
consumption and production externalities, commonly called network externalities. I discuss
their
sources and their effects on pricing and market structure. I distinguish between results that
do not
depend on the underlying industry microstructure (the "macro" approach) and those that do (the
"micro" approach). I analyze the issues of compatibility, coordination to technical standards,
interconnection and interoperability, and their effects on pricing and quality of services and on
the value
of network links in various ownership structures. I also briefly discuss the issue of
interconnection
fees for bottleneck facilities.
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