Abstract: After analysing express networkeffects,paper formulatesexpress customer utilitymodel and proposes a three-stage dynamic game model to study the compatibilitydecision in two subdivisional markets having four enterprises. Results show, ifunit costs don’tincrease, enterprises always havemotive of chosing compatibility and reveal mathematical relationship between profit,price, demand scale and market size, network size. Finally, modelis verified by an actualexample.

Key words: Network Effects,Utility Model,ExpressNetwork, Compatibility 

1Introduction 

Network effects are characteristicsthat the network value increases with the increacing number of network users.Theessence of characteristics is demand-side economies of scale. Express systems formkinds of service networks, so the systems have distinct network effects for thenetwork structure.Direct-network effects of express network mean ability andlevel improvement of interactivity of customers with network extension. Abilityof interactivity reflects the number of individuals that one customer can reaches,and level of interactivity reflects indaxes such as response speed,distribution speed, etc. that influence utilityfunction ofcustom,then influence demand function.Indirect-network effects mean supply-sideeconomies of scale caused by direct-network effects which influence unit costsof enterprises.In this paper,compatibility is difined as a modeof network cooperation among express enterprises, which determines size of availablenetwork of express enterprises.

Network size determinesthe value of express service, so enterprises always choose compatibilityto keep ahead. Actually, compatibility realizes the extension of network, butit may bring underlying disadvantage, motive of network compatibility is undefined,researches on it have academic and practical values.