Subsidizing the consumer market with a "free" complement to a compound good

• Consider profits in two markets -- initially, there are profits to be made in both markets

Acrobat Reader (market 1)	Acrobat Distiller (market 2)

• But subsidizing market one with a free good can increase demand and profits in market two more than the loss in market one.

Acrobat Reader (market 1)	Acrobat Distiller (market 2)

An inter-network externality (or 2-sided network externality) is a demand economy of scale that crosses coupled heterogeneous markets. Examples include:

• consumers & developers co-dependent on the same operating system
• card-holders & merchants that accept the same credit card
• content consumers & creators (e.g. PDF, MP3 streaming video) players & game developers

For coupled networks, expect to see an intermediary try to manage price pairs regardless of whether the intermediary is independent or managed by one side of the networ

A detailed model of information complements is available at ssrn.com
A presentation is also available (9MB pdf file)