Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Network Effects and Incentive to Attract Competition

Vol.16, No.1, March , 1–11



  •   (School of Economics, Kookmin University)

  •   (Department of Economics, Sogang University)

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Abstract  

In this paper, we study the incumbent's incentives to share its essential facility when there exist network effects. We show that without network effects, the incumbent will charge the access fee high enough to deter the entrant. With network effects, however, the incumbent always has an incentive to attract competition. We also show that if the potential entrant has to pay the entry costs, then the incumbent has an incentive to subsidize the entrant with a low access charge. When the network effects become large, the incumbent is willing to lower the access fee to the marginal cost.


Keywords
   Network effects, Foreclosure, Essential facility, Access charge

JEL classification codes
   D4, L1, L5
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