S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics (SJE) Seoul Journal of Economics vol.29 no.1~4 (2016)
Entry in a Network Industry with a Capacity-Then-Production Choice
- Issue Date
- Seoul Journal of Economics, Vol.29 No.3, pp. 411-429
- This study investigates the effect of consumption externalities on entry decision in network industries. A non-monotonic relation exists in the monopoly/duopoly profit differential. A monopolist which has to pay a cost to maintain his dominant position, such as a license fee or lobby expenditures, can block more easily entry for a wide range of network externalities unless these externalities are not exceedingly intense. Therefore, network externalities work as an innocent barrier to entry. The capacity choice of the incumbent in a capacity-then-production model reinforces the innocent entry barrier effect for the potential entrant.