Substitution between network externality and economy of scale
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    Abstract:

    This paper studies the oligopoly with the existence of both network externality and economy of scale. With a simple but meaningful model, the substitution ratio among the network externality and economy of scale is calculated in influencing market price, quantity and firms' profit. It is discovered that (1) network externality has strong substitute to the economy of scale so that the Index of Comprehensive Effect of Scale (scale of production and that of consumption, ICES) is designed to reveal their influence; (2) ICES increases the consumers' surplus but may reduce firms' profit; (3) ICES can determine the full market coverage and it has an opposite effect to finns' profit when all potential consumers purchase the good

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