Network Externalities and Interconnection Incentives

Arbeitspapier

The majority of industrial organizations literature on network externalities looks at firm behavior under given market characteristics. The present paper instead asks the question whether the presence of network externalities can change market characteristics, specifically, whether an initially large market player can decline cooperation (interconnection) with competing network operators and thereby gain a dominant position when network externalities are significant. The paper comes to the conclusion that only when a network operator already has network specific market power due to the ownership of a monopolistic bottleneck network area, will network externalities enable the operator to increase his market dominance. In competitive markets or in contestable natural monopolies, however, network externalities will not lend network specific market power to an initially large operator. In these markets, the market process can be expected to solve the trade-off between ensuring cooperation between competing operators and at the same time safeguarding competition in product characteristics and quality of service.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 05-80

Classification and Topics

• Classification: Wirtschaft ; Legal Monopolies and Regulation or Deregulation ; Information and Product Quality; Standardization and Compatibility
• Subject: network externalities ; interconnection ; regulation ; Network Externalities ; Struktur-Performance-Modell ; Industrieökonomik ; Wettbewerbstheorie ; Unternehmenskooperation ; Normung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vanberg, Margit A.
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/24176
• Last update: 10.03.2025, 11:41 AM CET