ABSTRACT
Strong network effects can enhance monopoly power and enable extension of monopoly power from one product line to another. In order to focus on the demand-side issues, the model assumes that the market is a monopoly. In a market with a dominant firm, it makes sense to assume that the dominant firm will set the industry price and the fringe firms will take that price as given. In practice, it is much more common to find industries in which there is a dominant firm as well as some number of smaller fringe firms. The dominant-firm price leadership model can be explained by using the steel industry as an example. During the first half of the twentieth century United States Steel was the dominant firm in the American steel industry, acting as the price leader for the smaller steel firms. A key is whether standards are established that allow multiple firms to produce competing products.
