Many researches in two-way interconnection in network industry have mainly focused on the area of the international and local telecommunication. This study extends the area of two-way interconnection to the industry where the network externality is strong, such as on-line services and bank's ATM network. We are interested in on-line services whether an individual network has a voluntary interconnection incentive when the strong network externality does exist.
The model of this study is basically differentiated from previous studies in the following three characteristics; substitutability, strong network externality and asymmetry. Regarding substitutability, it means that each network owns essential facility so that it is able to provide services independently without interconnection.
The major findings are summarized as follows. Between the two networks competing in the final market, if network externality is sufficiently strong and the negotiation on the access charge is proceeded rationally, each network has voluntary interconnection incentive. The type of this incentive varies depending on the gap of network size and the degree of substitutability. This implies that it would be desirable for a government to intervene contingently rather than regulate uniformly.
We expect that our results are applicable to the other similar industries. To make the results be applicable to the real world, some directions for further studies are suggested.
