Title: Barriers to network-specific innovation
First published: 2004
Description: "We consider an environment in which participants make payments over a network and can invest in a technology that reduces the marginal cost of using the network.  A network effect results in multiple equilibria; either all agents invest and usage of the network is high or no agents invest and usage of the network is low.  The high-usage equilibrium can be implemented through introduction of a coordinator.  Under monopoly network ownership, however, fixed costs associated with use of the network-specific technology result in a hold-up problem that implements the low-investment equilibrium.  And even where subsidies can avoid such hold-up, optimal monopoly pricing of network usage may avoid investment in the network-specific technology if demand for on-network transactions is sufficiently inelastic"--Federal Reserve Bank of Kansas City web site.
Subjects: Computer networks, Economic aspects, Economic aspects of Computer networks, Mathematical models
LC classification: HB1