The Economics of Network Industries

331 Pages·2004·1.405 MB·English

by  Oz Shy

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The Economics of Network Industries
This book introduces upper-level undergraduates, graduate students, and
researchers to the latest developments in network economics, one of the
fastest-growing fields in all industrial organization. Network industries
include the Internet, e-mail, telephony, computer hardware and software,
music and video players, and service operations in the banking, legal, and
airlines industries among many others. The work offers an overview of
the subject matter as well as investigations about specific industries. It
conveys the essential features of how strategic interactions between
firms are affected by network activity, as well as covering social interac-
tion and its influence on consumers’ choices of products and service. Vir-
tually no calculus is used in the text, and each chapter ends with a series
of exercises and selected references. The text may be used for both one-
and two-semester courses.
Oz Shy is Associate Professor of Economics at the University of Haifa,
Israel. He has also taught at Tel Aviv University, the Stockholm School of
Economics, the Universities of Michigan and Minnesota, Carleton Col-
lege, and the State University of New York. Professor Shy’s textbook In-
dustrial Organization: Theory and Applications was published by MIT
Press in 1996. He has written articles for the Journal of Economics and
Management Strategyand the International Journal of Industrial Eco-
nomics,among other leading publications.

The Economics of
Network Industries
Oz Shy
University of Haifa
         
The Pitt Building, Trumpington Street, Cambridge, United Kingdom
  
The Edinburgh Building, Cambridge CB2 2RU, UK
40 West 20th Street, New York, NY 10011-4211, USA
477 Williamstown Road, Port Melbourne, VIC 3207, Australia
Ruiz de Alarcón 13, 28014 Madrid, Spain
Dock House, The Waterfront, Cape Town 8001, South Africa
http://www.cambridge.org
©Oz Shy 2004
First published in printed format 2001
ISBN 0-511-04138-1 eBook (netLibrary)
ISBN 0-521-80095-1 hardback
ISBN 0-521-80500-7 paperback
For Sarah, Daniel, and Tianlai

Contents
Prefacexi
1IntroductiontoNetworkEconomics1
1.1OverviewofNetworkIndustries1
1.2WelfareAspects6
1.3ReferencesandtheScientificLiterature9
1.4Notation10
1.5SelectedReferences10
2TheHardwareIndustry13
2.1HardwareCompatibility15
2.2TheNetworkExternalitiesApproach16
2.3TheComponentsApproach36
2.4EmpiricalFindingsonNetworkExternalities43
2.5Exercises46
2.6SelectedReferences48
3TheSoftwareIndustry51
3.1PrinciplesofSoftwareProduction53
3.2TheDeterminationofSoftwareVariety54
3.3SoftwareVarietyUnderHardwareCompetition57
3.4SoftwareVarietyandPartialCompatibility62
3.5SoftwarePiracy65
3.6SoftwarePricingandMarketSegmentation70
3.7EmpiricalFindings73
3.8Exercises76
3.9SelectedReferences78
viii Contents
4 TechnologyAdvanceandStandardization81
4.1NewTechnologyAdoption:AStaticApproach81
4.2TechnologyRevolutions:ADynamicApproach83
4.3InternationalStandardization91
4.4Exercises97
4.5SelectedReferences98
5Telecommunication101
5.1TelecommunicationServices102
5.2TelecommunicationServices:ACalculusAnalysis109
5.3Interconnections117
5.4Exercises130
5.5SelectedReferences133
6Broadcasting135
6.1BroadcastingandCableTelevision136
6.2SpectrumAllocation149
6.3DigitalConvergence155
6.4Exercises159
6.5SelectedReferences161
7MarketsforInformation163
7.1InformationReproduction164
7.2TheEconomicsofLibraries170
7.3TheInternet175
7.4PricingInformationGoods182
7.5Exercises184
7.6SelectedReferences185
8BanksandMoney187
8.1SwitchingCostsandCompetition188
8.2AutomaticTellerMachines(ATMs)196
8.3MediaofExchangeasNetworks201
8.4Exercises211
8.5SelectedReferences212
9TheAirlineIndustry215
9.1NetworkStructuresandNetworkEconomies216
9.2DeregulationandEntry218
9.3Code-SharingAgreements224
9.4Exercises229
9.5SelectedReferences231