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Discussion Paper Details

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Title: Direct and Indirect Network Effects are Equivalent: A Comment on Direct Direct and Indirect Network Effects are Equivalent: A Comment on 'Direct and Indirect Network Effects: Are They Equivalent?'

Author(s): Jeffrey Church and Neil Gandal

Publication Date: August 2012

Keyword(s): network effects and standardization

Programme Area(s): Industrial Organization

Abstract: Clements (2004) makes the following two claims: (i) unlike direct network effects, increases in the size of the market do not, in the case of indirect network effects, make standardization more likely, but (ii) indirect network effects are associated with excessive standardization. We show in Clements? framework that neither of these results are correct: standardization is more likely as the number of software firms increases and when the type of market equilibrium is unique? there are only multiple networks or only standardization?there is never excessive standardization, but there could be insufficient standardization, just as is the case with direct network effects.

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Bibliographic Reference

Church, J and Gandal, N. 2012. 'Direct and Indirect Network Effects are Equivalent: A Comment on Direct Direct and Indirect Network Effects are Equivalent: A Comment on 'Direct and Indirect Network Effects: Are They Equivalent?''. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9097