Journal
REVIEW OF ECONOMIC STUDIES
Volume 71, Issue 2, Pages 483-512Publisher
OXFORD UNIV PRESS
DOI: 10.1111/0034-6527.00512
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This paper estimates the importance of network effects in the market for Yellow Pages. I estimate three simultaneous equations: consumer demand for usage of a directory, advertiser demand for advertising and a publisher's first-order condition (derived from profit-maximizing behaviour). Estimation shows that advertisers value consumer usage and that consumers value advertising, implying a network effect. I find that internalizing network effects would significantly increase surplus. As an application, I consider whether the market benefits from monopoly (which takes advantage of network effects) or oligopoly (which reduces market power). I find that a more competitive market is preferable.
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