Monday, May 31, 2010
Posted by D. Daniel Sokol
Junseok Hwang, Dongook Choi, Jongeun Oh, and Yeonbae Kim (Technology Management, Economics and Policy Program, Seoul National University) describe Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency.
ABSTRACT: Internet portals serve as platforms that coordinate advertising and user markets, and the portal market features network effects within and between both sides. We model the market structure in order to explain network effects and other factors of competition such as prices for advertisements, contents, and differentiated services offered. We empirically identify these effects with data from South Korea and analyze the role of the effects in terms of profit and market efficiency. The results indicate that a negative indirect network effect exists in the user market but is prevailed over by the direct network effect. This explains how Internet portals make profits by increasing user visits. Further, we show the existence of network effects causes consumer's surplus not to decrease with market concentration.