Working Paper: CEPR ID: DP9097
Authors: jeffrey church; neil gandal
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.
Keywords: network effects; standardization
JEL Codes: D43; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in software firms (L86) | higher likelihood of standardization (L15) |
| direct and indirect network effects (D85) | degree of standardization (L15) |
| multiple networks or standardization (D85) | unique equilibrium with insufficient standardization (C62) |