Network Topologies and Consumption Externalities

The economic implications of network topologies are studied via a monopolist’s model of market networks originally proposed by Phan, et al. (2003). By embedding the market into a larger collection of network topologies, in particular, a class of scale-free networks, we extend the early analysis built upon a class of ring networks. To facilitate the study of the impacts of network topologies upon market demand, various measures concerning social welfare (the consumer’s surplus), the avalanche effect, and the hysteresis effect, are formally established. Comparisons based on these measures show that network topologies matter, and their implied differences will remain even when the network size becomes large.