Quantifying and interpreting network effects: 'Own-network' is not the same as 'firm-level'

摘要

This note revisits existing research on network effects in the mobile telephony industry. It highlights that – defined correctly – own-network and firm-level network externalities are two different concepts, and that mixing them up leads to inaccurate interpretations. In particular, I demonstrate that the ratio of cross- to own-network effects is an imprecise measure of compatibility because it does not accurately isolate network effects that convey market power from effects that do not. As an alternative, I propose the ratio of industry- to firm-level network effects.