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Market structure in congestible markets

Record type: Article

This paper analyses market structure of industries that are subject to both positive and negative network effects. The size of a firm determines the quality of its product: when network effects are positive, a larger firm is of higher quality; when the effects are negative, a larger firm's product is of lower quality. Consumers have heterogeneous preferences towards quality (firm size), and firms compete in prices. Equilibria are characterised: for example, in any asymmetric equilibrium, it must be that congestion is not too severe. One consequence of this feature is that an increase in the number of firms in the industry can raise individual firms’ profits. Two factors can bound the number of firms in a free-entry equilibrium without fixed costs: expectations, and the ‘finiteness’ property (Shaked and Sutton, Review of Economic Studies 49 (1982) 3–13, Econometrica 51(5) (1983) 1469–1483) of price competition.

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Citation

Lee, In Ho and Mason, Robin (2001) Market structure in congestible markets European Economic Review, 45, (4-6), pp. 809-818. (doi:10.1016/S0014-2921(01)00130-1).

More information

Published date: 2001
Keywords: congestion, networks, market structure

Identifiers

Local EPrints ID: 32982
URI: http://eprints.soton.ac.uk/id/eprint/32982
ISSN: 0014-2921
PURE UUID: 163ecfbe-940d-4759-8a69-17e5a13299e0

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Date deposited: 15 May 2006
Last modified: 17 Jul 2017 15:54

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Contributors

Author: In Ho Lee
Author: Robin Mason

University divisions


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