Trade Negotiations in the Presence of Network Externalities

Kubota, Keiko

World Bank, Washington, DC

关键词: NETWORK ANALYSIS;    NETWORKS;    TRADE NEGOTIATIONS;    CONSUMER BEHAVIOR;    GOODS;   

DOI  :  10.1596/1813-9450-2317
RP-ID  :  WPS2317

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Network externalities exist when thebenefit a consumer derives from a good or service depends onthe number of other consumers using the same good, orservice (as happens, for example, with telecommunications,television broadcasting standards, and many othertechnology-related goods and services). National monopolies,regulated and endorsed by sovereign governments, tended toproduce network externalities in the past: most countrieshad telephone monopolies, often state-owned, beforederegulation. Whether to allow foreign competition in suchindustries becomes a pressing issue when national boundariesbegin to blur as technology advances, and as previouslyuntraded goods and services become tradable. Despite obviousgains from trade in such newly tradable sectors, governmentsoften keep trade-prohibiting measures. With analog highdefinition television (HDTV) transmission standards, forexample, regulations and politics kept Europe, and Japanfrom cooperating, so each invested heavily to develop itssystem in an attempt to have its own standard adopted by therest of the world. The author analyzes how the presence ofnetwork externalities affects a country's willingnessto trade. In her model, governments decide whether or not toallow international trade. When trading is permitted, thesuperior standard drives out all other in the trading area.She shows that even when there are efficiency gains fromworldwide standardization, global free trade may notprevail. The technology leader is generally eager to trade,but countries with less advanced technology often choose toform inefficient regional blocks, or not to trade at all.Once such regional networks are established, globalefficiency-enhancing free trade becomes even harder toachieve than it would have been in their absence. Transferpayments between countries reduce or eliminate suchinefficiency, and facilitate the achievement of efficienttrade in products. To achieve mutually beneficialarrangements, it is important to arrive at multilateralagreements before regional blocks form.