TworelatedpapersontheroleofcountervailingpowerarevonUngern-Sternberg(1996)andDobsonandWaterson(1997).They ndthatincreasedconcentrationattheretaillevelcanleadtohigherpricesforconsumers.AsChen(2003)argued,theirmodelsdonotcapturesomeoftheimportantfeaturesoftheretailindustry.

workIndustries

Manynetworkindustrieshavebeenundergoingrapidtechnologicalandregulatorychanges.Somehavebeentransformed,orwentthroughatransitionfromtradition-allyregulatedtocompetitivesectors.Examplesincludetransportationindustriessuchasairlines,railroad,truckingandexpresspackagedelivery,publicutilityin-dustrieslikeelectricity,aswellastelecommunicationsandcableTVindustries.TheInterneto ersanotherexampleinwhichnetworkfeaturesareobviouslysigni cant.

Networkindustriescanbequali edwithanumberofcharacteristics.The rstissigni canteconomiesofscaleinproductionforwhichairlineindustryisanex-ample.High xedcostsandrelativelylowmarginalcostattheroutelevelgiverisetoeconomiesofdensities,whichinturninducesaparticularnetworkpatternsuchashub-spokenetworks.Theproductionofinformationproductssuchascomputersoftware,recordedmusicandmoviesofteninvolveshigh xedcostandlowmarginalcostaswell.Thesecondcharacteristicconcernscomplementarityamongproductsandservices.Thecomplementaritybetweenhardwareproducts(computers,DVDplayers,andvideogameplayers)andsoftwareproductsisagoodexample.Printme-dia,TVbroadcastingandInternetportalsallo ercomplementaryservicestoviewersandadvertisers.Thethirdcharacteristicofnetworkindustriesis(directorindirect)networkexternality,plemen-tarityandnetworkexternalitiesofteninducemarketstobetwo-sidedormulti-sided.Thecreditcardsindustryisonesuchanexample.

Businessstrategiesandregulatorypoliciesinnetworkindustrieshavereceivedmuchattentionfromresearchersinlate80sand90s.Inthissection,weselectivelyreviewsomeofthesestudies.AmorecompleteandcomprehensivediscussiononnetworkindustriesisprovidedbyShy(2001)inhisbookTheEconomicsofNetworkIndustries.

3.1.Hub-SpokeNetworks.Amongallthetransportationsectors,theairlineindustrypresentsaninterestingcase,duetoitsnetworkformation.Followingthederegulationofthesectorinthelate70s,manynew rmsentered,butsincethentheindustryhasgrownincreasinglymoreconcentrated.Giventhefreedomtoenter,exit,andchoosetheirownroutestructureandairfares,mostairline rmshavetransformedtheirnetworksintohub-and-spokesystems.Astrikingfeatureofthesenetworksis