Harvard Kennedy School Harvard University

Search this site

Faculty Research Working Paper Series
Pinar Dogan
Lecturer in Public Policy
phone: (617)496-5865
Vertical Networks, Integration, and Connectivity.
Dogan, Pinar. "Vertical Networks, Integration, and Connectivity." KSG Faculty Research Working Paper Series RWP05-061, November 2005.
This paper studies competition in a network industry with a stylized two layered network structure, and examines: (i) price and connectivity incentives of the upstream netwoks, and (ii) incentives for vertical integration between an upstream network provider and a downstream firm. The main result of this paper is that vertical integration occurs only if the initial installed-base difference between the upstream networks is sufficiently small, and in that case, industry is configured with two vertically integrated networks with neither of the upstream firm having an incentive to degrade the quality of interconnection. When the installed-base difference is sufficiently large, there is no integration in the industry, and the equilibrium quality of interconnection is lower compared to the equilibrium with two vertically integrated firms.



Copyright © 2017 The President and Fellows of Harvard College