International Journal of Business and Economics Volume 10, No. 3 December, 2011

Cost Pass-Through with Network Externalities

Anna Laura Baraldi

Department of European Studies, Second University of Naples, Italy

Christian Rojas

Department of Resource Economics, University of Massachusetts—Amherst, U.S.A.

Abstract

We analyze the rate at which cost shocks are passed through to prices when the market exhibits network externalities. We find that the pass-through rate is smaller in the presence of network externalities. Also, the deadweight loss created by a cost shock is smaller in a network market.

Keywords：network externalities, cost pass-through, deadweight loss.

JEL Classifications：D6, D85, H23.

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