IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v56y2008i4p685-706.html
   My bibliography  Save this article

Splintering And Inertia In Network Industries

Author

Listed:
  • TOBIAS KRETSCHMER

Abstract

We analyse a stylised game of technology adoption with network effects and two new technologies. Potential adopters can adopt early, late or not at all. We show that one of the reasons for the failure of new technologies can be the presence of multiple incompatible variants of that technology. An adopter's individual incentives to adopt are lower with two technologies than with one. Turning to aggregate expected welfare, we find that two active technologies may be welfare‐improving.

Suggested Citation

  • Tobias Kretschmer, 2008. "Splintering And Inertia In Network Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 685-706, December.
    • Handle: RePEc:bla:jindec:v:56:y:2008:i:4:p:685-706
    DOI: 10.1111/j.1467-6451.2008.00359.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-6451.2008.00359.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-6451.2008.00359.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    2. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    3. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 31, pages 1967-2072, Elsevier.
    4. Angelique Augereau & Shane Greenstein & Marc Rysman, 2004. "Coordination vs. Differentiation in a Standards War: 56K Modems," NBER Working Papers 10334, National Bureau of Economic Research, Inc.
    5. Jay Pil Choi, 1994. "Irreversible Choice of Uncertain Technologies with Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 382-401, Autumn.
    6. Ernst R. Berndt & Robert S. Pindyck & Pierre Azoulay, 2003. "Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 243-270, June.
    7. Choi, Jay Pil & Thum, Marcel, 1998. "Market structure and the timing of technology adoption with network externalities," European Economic Review, Elsevier, vol. 42(2), pages 225-244, February.
    8. Postrel, Steven R, 1990. "Competing Networks and Proprietary Standards: The Case of Quadraphonic Sound," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 169-185, December.
    9. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    10. Glen L. Urban & Eric von Hippel, 1988. "Lead User Analyses for the Development of New Industrial Products," Management Science, INFORMS, vol. 34(5), pages 569-582, May.
    11. Schmutzler, Armin, 1998. "Changing places--the role of heterogeneity and externalities in cumulative processes," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 445-461, July.
    12. David Dranove & Neil Gandal, 2003. "The Dvd‐vs.‐Divx Standard War: Empirical Evidence of Network Effects and Preannouncement Effects," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 363-386, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bourreau, Marc & Cambini, Carlo & Doğan, Pınar, 2012. "Access pricing, competition, and incentives to migrate from “old” to “new” technology," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 713-723.
    2. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Market leadership through technology – Backward compatibility in the U.S. Handheld Video Game Industry," Discussion Papers in Business Administration 12716, University of Munich, Munich School of Management.
    3. Pavan, Giulia & Pozzi, Andrea & Rovigatti, Gabriele, 2020. "Strategic entry and potential competition: Evidence from compressed gas fuel retail," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    4. Timothy Simcoe & Jeremy Watson, 2019. "Forking, Fragmentation, and Splintering," Strategy Science, INFORMS, vol. 4(4), pages 283-297, December.
    5. Johannes Loh & Tobias Kretschmer, 2023. "Online communities on competing platforms: Evidence from game wikis," Strategic Management Journal, Wiley Blackwell, vol. 44(2), pages 441-476, February.
    6. Cabral, Luís & Salant, David, 2014. "Evolving technologies and standards regulation," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 48-56.
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    8. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Backward Compatibility to Sustain Market Dominance – Evidence from the US Handheld Video Game Industry," Discussion Papers in Business Administration 11499, University of Munich, Munich School of Management.
    9. J. P. Eggers & Michał Grajek & Tobias Kretschmer, 2020. "Experience, Consumers, and Fit: Disentangling Performance Implications of Preentry Technological and Market Experience in 2G Mobile Telephony," Organization Science, INFORMS, vol. 31(2), pages 245-265, March.
    10. Grajek, Michal, 2010. "Estimating network effects and compatibility: Evidence from the Polish mobile market," Information Economics and Policy, Elsevier, vol. 22(2), pages 130-143, May.
    11. Michal Grajek & Tobias Kretschmer, 2008. "Estimating critical mass in the global cellular telephony market," ESMT Research Working Papers ESMT-08-004 (R1), ESMT European School of Management and Technology, revised 15 Apr 2010.
    12. JP Eggers & Michal Grajek & Tobias Kretschmer, 2011. "Performance implications of core and complementary pre-entry experience: The role of consumer heterogeneity in mobile telephony," ESMT Research Working Papers ESMT-11-03 (R2), ESMT European School of Management and Technology, revised 29 May 2012.
    13. Kerstan, Sven & Kretschmer, Tobias & Muehlfeld, Katrin, 2012. "The dynamics of pre-market standardization," Information Economics and Policy, Elsevier, vol. 24(2), pages 105-119.
    14. Grajek, Michał & Kretschmer, Tobias, 2012. "Identifying critical mass in the global cellular telephony market," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 496-507.
    15. Matthias Berger & Christian Matt & Jochen Gönsch & Thomas Hess, 2019. "Is the Time Ripe? How the Value of Waiting and Incentives Affect Users’ Switching Behaviors for Smart Home Devices," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 71(1), pages 91-123, February.
    16. Gandal Neil & Kunievsky Nadav & Branstetter Lee, 2021. "Network-Mediated Knowledge Spillovers in ICT/Information Security," Review of Network Economics, De Gruyter, vol. 19(2), pages 85-114, January.
    17. Tobias Kretschmer & Jörg Claussen, 2016. "Generational Transitions in Platform Markets—The Role of Backward Compatibility," Strategy Science, INFORMS, vol. 1(2), pages 90-104, June.
    18. J. P. Eggers, 2016. "Reversing course: Competing technologies, mistakes, and renewal in flat panel displays," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1578-1596, August.
    19. Jacobides, Michael G. & Cennamo, Carmelo & Gawer, Annabelle, 2024. "Externalities and complementarities in platforms and ecosystems: From structural solutions to endogenous failures," Research Policy, Elsevier, vol. 53(1).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    2. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, September.
    3. Chaim FERSHTMAN & Neil GANDAL, 2012. "Migration to the Cloud Ecosystem: Ushering in a New Generation of Platform Competition," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(85), pages 109-123, 1st quart.
    4. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    5. Colla, Paolo & Garcia, Filomena, 2016. "Technology adoption: Hysteresis and absence of lock-in," Economics Letters, Elsevier, vol. 141(C), pages 107-111.
    6. Siciliani, Paolo & Giovannetti, Emanuele, 2019. "Platform competition and incumbency advantage under heterogeneous switching cost — exploring the impact of data portability," Bank of England working papers 839, Bank of England.
    7. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    8. den Hartigh, E. & Langerak, F. & Commandeur, H.R., 2002. "The Effects of Self-Reinforcing Mechanisms on Firm Performance," ERIM Report Series Research in Management ERS-2002-46-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Heli Koski & Tobias Kretschmer, 2004. "Entry, Standards and Competition: Firm Strategies and the Diffusion of Mobile Telephony," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(1), pages 89-113, November.
    10. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485, September.
    11. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    12. Chia‐Hui Chen & Junichiro Ishida, 2021. "A War of Attrition with Experimenting Players," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 239-269, June.
    13. Mangematin, V. & Callon, M., 1995. "Technological competition, strategies of the firms and the choice of the first users: the case of road guidance technologies," Research Policy, Elsevier, vol. 24(3), pages 441-458, May.
    14. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516, Elsevier.
    15. Wei Jin & ZhongXiang Zhang, 2015. "Levelling the Playing Field: On the Missing Role of Network Externality in Designing Renewable Energy Technology Deployment Policies," Working Papers 2015.76, Fondazione Eni Enrico Mattei.
    16. Marta Montinaro & Rupayan Pal & Marcella Scrimitore, 2020. "Per unit and ad valorem royalties in a patent licensing game," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-014, Indira Gandhi Institute of Development Research, Mumbai, India.
    17. Kerstan, Sven & Kretschmer, Tobias & Muehlfeld, Katrin, 2012. "The dynamics of pre-market standardization," Information Economics and Policy, Elsevier, vol. 24(2), pages 105-119.
    18. Kretschmer, Tobias & Muehlfeld, Katrin, 2006. "Co-opetition and prelaunch in standard-setting for developing technologies," LSE Research Online Documents on Economics 19843, London School of Economics and Political Science, LSE Library.
    19. Christ, Julian P. & Slowak, André P., 2009. "Why blu-ray vs. HD-DVD ist not VHS vs. Betamax: The co-evolution of standard-setting consortia," FZID Discussion Papers 05-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    20. Kornish, Laura J., 2006. "Technology choice and timing with positive network effects," European Journal of Operational Research, Elsevier, vol. 173(1), pages 268-282, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:56:y:2008:i:4:p:685-706. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.