An empirical analysis on indirect network externalities between the broadband internet service and contents industry in Korea

Abstract

This paper proposes to demonstrate the relationship between the broadband internet service and contents as a hardware/software system in indirect network. I examine the data of two variables in Korea broadband internet service market between 2001 and 2007. The methodology is to assume that two variables can be estimated by simultaneous equation model and they are endogenous variables affected each other. Empirical results suggest that the model has simultaneity and the two variables are endogenous. It means that there is mutual relationship between the broadband internet service and contents, and there are indirect network externalities which induce an increase of the utility. This relationship implies that variety of contents affect to increase the network size, vice-versa.