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Competition between Networks: A Study of the Market for Yellow Pages

Marc Rysman
The Review of Economic Studies
Vol. 71, No. 2 (Apr., 2004), pp. 483-512
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/3700635
Page Count: 30
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Competition between Networks: A Study of the Market for Yellow Pages
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Abstract

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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