Network Centrality and Device Ecosystems

Abstract

We develop a model of a device ecosystem to study how network structure affects demand, pricing, and output for the underlying products. Prices depend on each device's Katz-Bonacich centrality in a network defined by the demand-side externalities linking devices. We show how the relevant network differs for an ecosystem monopolist, a social planner, a regulator that sets Ramsey prices, or a "decentralized'' ecosystem where devices sell at marginal cost. Finally, we extend our baseline model by adding complementary goods and allowing for imperfect competition among downstream device producers.

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Reference

Doh-Shin Jeon, Yassine Lefouili, Yaxin Li, and Timothy Simcoe, “Network Centrality and Device Ecosystems”, TSE Working Paper, n. 23-1468, September 2023, revised January 2025.