Final answer:
To determine which firm will control the market in the presence of network externalities, one must consider market power, product similarity, barriers to entry, and competitive strategies, such as pricing and advertising.
Step-by-step explanation:
When considering the impact that network externalities have on the market, analyzing which firm will control the market involves evaluating various factors. These include determining the extent of market power each firm holds, the degree of product differentiation, barriers to entry for new competitors, and strategies such as price and advertising competition.
To ascertain the influence of negative externalities, we must assess all affected parties. An example of a negative externality is noise pollution from a company's operations. Addressing this negative externality by making the firm pay for its additional external costs can cause a shift in supply curves, impacting equilibrium price and quantity. If addressing the externality makes production more costly, it can change market dynamics and potentially the firm's market position.
Moreover, to determine which firm will control the market, other considerations include competitive strategies and barriers to entry. High barriers to entry might protect established firms from new competition, while firms with unique competitive strategies or products may gain a stronghold in the market.