Wｅ internalize network effects, which are assumed to be exogenously given in prior literature (Lambertini and Orsini, 2001, 2003; Toshimitsu, 2007). To  do so, we propose the argument netｗoｒk function as one of the firm's strategies that is accompanied by the properties of goods and services in network industries. That is, the network function stands for ａ maneuver of operation that works on all customers and its improvement equally increases their utilities. Employing a vertically differentiated product model with endogenous network effects, we show the implications of ａ monopolist's
choice of network function and quality level for social welfare. Compared with the social optimum, the monopolist has an incentive to undersupply a product attached to ａ less efficient network function and to either the over- or under-provision of quality.

Notes