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Growth Incentives to Invest in a Network Externality Environment

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  • Chacko, Mani
  • Mitchell, Will

Abstract

Firms that operate in the telecommunications industry often have to make large and risky investments in digital infrastructure. This paper examines how firm size affects the incentive to invest in infrastructure projects in industry environments that incur substantial network externalities. We suggest that, in the presence of network externalities, a firm's rate of growth first declines and then increases with the size of its user base. An implication of this result is that firms may benefit from making investments in emerging digital infrastructure early enough to achieve a substantial user base and to gain that user base before other firms' investments pre-empt them. The results mean that firms that undertake earlier successful investment may achieve preemption very quickly. The sources of network externalities contribute to the incidence of strategic alliances in network industries, particularly when coupled with the pressures of technical uncertainty. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Chacko, Mani & Mitchell, Will, 1998. "Growth Incentives to Invest in a Network Externality Environment," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 7(4), pages 731-744, December.
    • Handle: RePEc:oup:indcch:v:7:y:1998:i:4:p:731-44
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    Cited by:

    1. Sebastian Voigt & Oliver Hinz, 2017. "Assessing the economic effects of server launches in free-to-play MMO games," Journal of Business Economics, Springer, vol. 87(4), pages 421-464, May.
    2. McIntyre, David P. & Chintakananda, Asda, 2014. "Competing in network markets: Can the winner take all?," Business Horizons, Elsevier, vol. 57(1), pages 117-125.
    3. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & David P. McIntyre & Arati Srinivasan, 2017. "Networks, platforms, and strategy: Emerging views and next steps," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 141-160, January.
    4. Grigoriev, A. & Uetz, M.J., 2005. "Scheduling parallel jobs with linear speedup," Research Memorandum 015, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    5. Rohman, Ibrahim Kholilul & Bohlin, Erik, 2010. "On the ICT Economy in the European Countries: Investigating the Contribution of the ICT Sectors Using the Input-Output Model," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 29, International Telecommunications Society (ITS).

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