Platform Competition in Telecommunications

Jeffrey Church, and Neil Gandal

1/01/2005
(Original Publish Date: 7/22/2004)

In this chapter we view platform competition through the lense of network economics to develop an understanding of the determinants of its outcome and adoption patterns by consumers. In Section 2 we define network industries and distinguish between types of networks. We introduce the concept of network effects and discuss how the presence of network effects affects demand for a platform. In this section, we also discuss settings in which network effects give rise to network externalities. In Section 3 we distinguish between standards wars, battles over compatibility, and cooperative standard setting leading to battles on the network—rather than between networks. Section 4 considers firm strategies in standards wars and raises the possibility that competition between incompatible technologies may not result in an efficient standard. Section 5 discusses battles for compatibility between dominant networks and competitors, while Section 6 discusses the economics of cooperative standard setting. Section 7 discusses the role of regulation in insuring compatibility (interconnection) and setting standards. Section 8 contains a number of case studies drawn from telecommunications that illustrate the principles of network competition discussed in the preceding sections.