Complementarity, coordination and compatibility: the role of fixed costs in the economics of systems
Article Abstract:
Increasing returns to scale in the form of fixed costs play a crucial role in economic competition through the creation of network or system effect. In the competition of network systems with compatible complementary components, the resulting equilibrium is only a symmetric duopoly. Network systems that have incompatible complementary components result in equilibria that are either symmetrical or asymmetrical, monopolistic or duopolistic. The type of resulting equilibrium depends on the size of the system effect, which in turn depends on the fixed cost.
Publication Name: International Journal of Industrial Organization
Subject: Business, international
ISSN: 0167-7187
Year: 1996
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The economics of network
Article Abstract:
A network is composed of several linked, compatible and complementary components, which may be owned by different companies. This fragmented ownership raises issues on interconnection, compatibility, interoperability and coordination to technical standards. However, it also precludes monopoly and serves as an incentive towards licensing, vertical integration and buy-outs. Several non-network industries share these essential economic features, the implications of which need further examination to fully explore their impact on market price.
Publication Name: International Journal of Industrial Organization
Subject: Business, international
ISSN: 0167-7187
Year: 1996
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Technology revolutions in the presence of network externalities
Article Abstract:
Network externality is the influence that the number of users/buyers of a particular, compatible complementary component has on purchase decision. It is one of the major factors affecting technology adoption by consumers. The network size, which is the number of buyers/users of the same component, influences the speed of technological development. Network size and network externality in turn are determined by the consumers' degree of substitution.
Publication Name: International Journal of Industrial Organization
Subject: Business, international
ISSN: 0167-7187
Year: 1996
User Contributions:
Comment about this article or add new information about this topic:
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