Investment and competition with positive externalities in open networks

Chang Liu, Yuanzhang Xiao, Ermin Wei, Randall A. Berry

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

A key feature of many information services is that they exhibit positive externalities or network effects, i.e., the value of the service increases with the number of users. Here, we consider an open network, in which a given service may be offered by multiple providers and the positive externality depends on the total number of customers served by all providers. Providers compete for customers and may also invest in their networks to improve the externality experienced by their own customers. We model this as a two-stage investment and competition game, where after investing, firms compete via Bertrand competition. In both the socially optimal and the monopoly outcomes, under mild conditions, the firm either does not invest or invests at the maximum level. In addition, a monopolist always underinvests. Interestingly, we find that with competition, there can be at most one firm investing.

Original languageEnglish (US)
Title of host publication2015 53rd Annual Allerton Conference on Communication, Control, and Computing, Allerton 2015
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages744-746
Number of pages3
ISBN (Electronic)9781509018239
DOIs
StatePublished - Apr 4 2016
Event53rd Annual Allerton Conference on Communication, Control, and Computing, Allerton 2015 - Monticello, United States
Duration: Sep 29 2015Oct 2 2015

Publication series

Name2015 53rd Annual Allerton Conference on Communication, Control, and Computing, Allerton 2015

Other

Other53rd Annual Allerton Conference on Communication, Control, and Computing, Allerton 2015
CountryUnited States
CityMonticello
Period9/29/1510/2/15

ASJC Scopus subject areas

  • Computer Networks and Communications
  • Computer Science Applications
  • Control and Systems Engineering

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