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Network Effects, Switching Costs, and Underlying Preferences in Operating Systems for Servers: A Case of Linux vs. Windows

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We seek to investigate to what extent network effects and switching costs affect the decision to adopt Linux or Windows as the operating system for computer servers. To this end, we use detailed survey data of over 100,000 establishments in the United States. To account for unobserved preferences for either operating system, we employ recently developed dynamic discrete choice panel data methods (Arellano and Carrasco 2003). The results from our empirical analysis suggest that among network effects, switching costs, and unobserved preferences, the last two are important factors in the market for operating systems for servers. We find that switching costs are significant, but can be severely overestimated by methods that do not account for unobserved heterogeneity in establishment-specific tastes for operating systems. We also find that once taste heterogeneity is taken into account, network effects are not significant.

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  • Seung-Hyun Hong & Leonardo Rezende, 2006. "Network Effects, Switching Costs, and Underlying Preferences in Operating Systems for Servers: A Case of Linux vs. Windows," Working Papers 06-12, NET Institute, revised Sep 2006.
    • Handle: RePEc:net:wpaper:0612
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    1. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 339-376.
    2. Arellano, Manuel & Carrasco, Raquel, 2003. "Binary choice panel data models with predetermined variables," Journal of Econometrics, Elsevier, vol. 115(1), pages 125-157, July.
    3. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
    4. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
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