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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society
Network Effects and Incentive to Attract Competition
Vol.16, No.1, March 2005, 1–11
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Chongmin Kim
(School of Economics, Kookmin University)
Gyu Ho Wang
(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.
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Keywords
Network effects, Foreclosure, Essential facility, Access charge |
JEL classification codes
D4, L1, L5 |
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