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Endogenous Network Effects

Author

Listed:
  • Dewenter, Ralf

    (Helmut Schmidt University, Hamburg)

  • Löw, Franziska

    (Helmut Schmidt University, Hamburg)

Abstract
In contrast to traditional business models, two-sided platforms internalize indirect network effects that exist between different groups of platform participants. The strength of the network effects has a decisive influence on the success of the platform and its market position. Markets with particularly strong network effects are also often characterized by a high degree of concentration. However, the strength of the network effects is not exogenously given but can be influenced by targeted investment. This paper analyses how platforms can affect network effects by investing in appropriate infrastructure, data, or artificial intelligence. We derive optimal quantities, prices, profits, and investments depending on different types of investments.

Suggested Citation

  • Dewenter, Ralf & Löw, Franziska, 2022. "Endogenous Network Effects," Working Paper 194/2022, Helmut Schmidt University, Hamburg.
    • Handle: RePEc:ris:vhsuwp:2022_194
    as

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    References listed on IDEAS

    as
    1. Wenzel, Daniela, 2018. "Droughts and Corruption," Working Paper 181/2018, Helmut Schmidt University, Hamburg.
    2. Ross, Harm Hauke, 2019. "Second-hand price volatility of green ships: an empirical analysis across main shipping segments," Working Paper 182/2019, Helmut Schmidt University, Hamburg.
    3. Lauenstein, Philipp & Küster Simic, André, 2016. "Information Processing in Freight and Freight Forward Markets: An Event Study on OPEC Announcements," Working Paper 172/2016, Helmut Schmidt University, Hamburg.
    4. Beckmann, Klaus B., 2017. "Bounded rationality in differential games," Working Paper 178/2017, Helmut Schmidt University, Hamburg.
    5. Marc‐André Luik & Amelia Guha Thakurta & Dennis Wesselbaum, 2021. "Child health, human capital, and adult financial behavior," Health Economics, John Wiley & Sons, Ltd., vol. 30(11), pages 2722-2750, November.
    6. Dewenter, Ralf & Linder, Melissa & Thomas, Tobias, 2018. "Can Media Drive the Electorate? The Impact of Media Coverage on Party Affiliation and Voting Intentions," Working Paper 179/2018, Helmut Schmidt University, Hamburg.
    7. Nagel, Korbinian, 2016. "A Life Course Perspective on the Income-to-Health Relationship: Macro-Empirical Evidence from two Centuries," VfS Annual Conference 2016 (Augsburg): Demographic Change 145810, Verein für Socialpolitik / German Economic Association.
    8. Tran, Thi Xuyen, 2021. "Typhoon and Agricultural Production Portfolio Empirical Evidence for a Developing Economy," Working Paper 188/2021, Helmut Schmidt University, Hamburg.
    9. Salland, Jan, 2021. "Income Comparison and Happiness within Households," Working Paper 191/2021, Helmut Schmidt University, Hamburg.
    10. Tran, Thi Xuyen, 2021. "Typhoon and Agricultural Production Portfolio -Empirical Evidence for a Developing Economy," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242411, Verein für Socialpolitik / German Economic Association.
    11. Bernhardt, Lea, 2020. "Common factors of withdrawn and prohibited mergers in the European Union," Working Paper 184/2020, Helmut Schmidt University, Hamburg.
    12. Nagel, Korbinian, 2016. "A Life Course Perspective on the Income-to-Health Relationship: Macro-Empirical Evidence from Two Centuries," Working Paper 171/2016, Helmut Schmidt University, Hamburg.
    13. Herzer, Dierk & Nagel, Korbinian, 2017. "The effects of adult and non-adult mortality on long-run economic development: Evidence from a heterogeneous dynamic and cross-sectionally dependent panel of countries between 1800 and 2010," Working Paper 177/2017, Helmut Schmidt University, Hamburg.
    14. Luik, Marc-André, 2016. "Child Health, Human Capital and Adult Financial Behavior," Working Paper 174/2016, Helmut Schmidt University, Hamburg.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    two-sided markets; indirect network effects; endogenous network effects; optimal investment strategy;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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