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Snowball: A dynamic oligopoly model with indirect network effects

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  • Markovich, Sarit

Abstract

Allowing for innovation dynamics in the software market, this paper studies the conditions under which standardization in the hardware market arises and persists over time. In the model, software firms repeatedly invest in quality upgrades, compete in the product market, and make exit as well as entry decisions. The results show that, in general, excess inertia does not occur. A platform becomes the standard in a market only if it is better than the competing platforms. Furthermore, low overall rates of innovation always lead to variety; conversely, the higher the speed of innovation, the more likely standardization is.

Suggested Citation

  • Markovich, Sarit, 2008. "Snowball: A dynamic oligopoly model with indirect network effects," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 909-938, March.
    • Handle: RePEc:eee:dyncon:v:32:y:2008:i:3:p:909-938
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    16. Jullien, Bruno & Halaburda, Hanna & Yehezkel, Yaron, 2016. "Dynamic Competition with Network Externalities: Why History Matters," CEPR Discussion Papers 11205, C.E.P.R. Discussion Papers.
    17. 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.
    18. Jiawei Chen, 2010. "Product Compatibility in Network Industries with Switching Costs," Working Papers 10-23, NET Institute.
    19. Schneider, Lorenz, 2014. "Firm value in emerging network industries," Information Economics and Policy, Elsevier, vol. 26(C), pages 75-87.
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