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The Installed Base Effect: Some Empirical Evidence From The Microcomputer Market

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  • Heli Koski

Abstract

The penetration rate US network technologies is not only determined by the indigenous qualities of these technologies, but also by the adoption behaviour of other actors using the same network technology. This paper provides empirical evidence for the importance of network externalities and suggests that the econonmic consequences of network externalities - as they affect the diffusion speed of network technologies at an aggregate level - may be considerable.When the market offers incompatible network technologies, the relative share of previous adopters of the technologies plays a critical role in determining the diffusion speed of network technologies. This paper provides empirical evidence from the European microcomputer market between 1985 and 1994 which supports this hypothesis. Our analysis suggests that the diffusion speed of microcomputers at an aggregate level has varied with the relative order of magnitude of the network size of the two incompatible operating systems: a higher variation between the number of users of different microcomputers sold is positively relaled to a higher diffusion speed of microcomputers in general.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 8 (1999)
Issue (Month): 4 ()
Pages: 273-310

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Handle: RePEc:taf:ecinnt:v:8:y:1999:i:4:p:273-310

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Related research

Keywords: Network externalities; Installed base of users; Timing of adoption; Compatibility JEL Classification: O33; O52; L63;

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Cited by:
  1. Tobias Kretschmer, 2004. "Upgrading and niche usage of PC operating systems," LSE Research Online Documents on Economics 802, London School of Economics and Political Science, LSE Library.
  2. Heli Koski & Tobias Kretschmer, 2004. "Survey on competing in network industries : firm strategies, market outcomes, and policy implications," LSE Research Online Documents on Economics 803, London School of Economics and Political Science, LSE Library.
  3. Koski, Heli & Kretschmer, Tobias, 2002. "Entry, Standards and Competition : Firm Strategies and the Diffusion of Mobile Telephony," Discussion Papers 824, The Research Institute of the Finnish Economy.
  4. Nicoletta Corrocher & Roberto Fontana, 2008. "Expectations, network effects and timing of technology adoption: some empirical evidence from a sample of SMEs in Italy," Small Business Economics, Springer, vol. 31(4), pages 425-441, December.
  5. Koski, Heli, 2000. "Regulators and Competition Spurring or Retarding Innovation in the Telecommunications Sector?," Discussion Papers 724, The Research Institute of the Finnish Economy.
  6. Koski, Heli, 2000. "Feedback Mechanisms in the Evolution of Networks: The Installed User Base and Innovation in the Communications Sector," Discussion Papers 725, The Research Institute of the Finnish Economy.
  7. A. Bassanini & G. Dosi, 1998. "Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure," Working Papers ir98012, International Institute for Applied Systems Analysis.
  8. Joachim Henkel & Jörn Block, 2013. "Peer influence in network markets: a theoretical and empirical analysis," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 925-953, November.
  9. Leonhard Dobusch & Elke Schü�ler, 2013. "Theorizing path dependence: a review of positive feedback mechanisms in technology markets, regional clusters, and organizations," Industrial and Corporate Change, Oxford University Press, vol. 22(3), pages 617-647, June.

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