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Market Structure and the Timing of Technology Adoption with Network Externalities

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Author Info
Jay Pil Choi ()
Marcel Thum ()

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Abstract

The paper shows that in the presence of network externalities, consumers adopt conventional technologies too early; the waiting option for a newly emerging technology is not exercised enough. This problem is aggravated when the new technology is provided by a single producer with market power because any positive value created via waiting by current consumers will be ex post appropriated by the monopolist. Therefore, the monopolist's power to extract surplus operates against his own interests in this dynamic setting. The paper also shows how the producer of a new technology can partially overcome the problem of too little waiting by using licensing as a commitment device.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 130.

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Date of creation: 1997
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Handle: RePEc:ces:ceswps:_130

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Related research
Keywords: network externalities standardization licensing

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Blackwell Publishing, vol. 42(2), pages 167-82, June. [Downloadable!] (restricted)
    Other versions:
  2. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn. [Downloadable!] (restricted)
  5. 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 822-41, August. [Downloadable!] (restricted)
  6. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February. [Downloadable!] (restricted)
  7. Thum, Marcel, 1994. "Network externalities, technological progress, and the competition of market contracts," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 269-289, June. [Downloadable!] (restricted)
  8. Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November. [Downloadable!] (restricted)
    Other versions:
  9. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 55-83, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arijit Mukherjee & Enrico Pennings, 2001. "Imitation, patent protection and welfare," Keele Department of Economics Discussion Papers (1995-2001) 2001/03, Department of Economics, Keele University. [Downloadable!]
    Other versions:
  2. Victor Stango, 2004. "The Economics of Standards Wars," Review of Network Economics, Concept Economics, vol. 3(1), pages 1-19, March. [Downloadable!]
  3. Christian Dahl Winther, 2008. "Popularity and Debut," Economics Working Papers 2008-02, School of Economics and Management, University of Aarhus. [Downloadable!]
  4. Kubota, Keiko, 2000. "Trade negotiations in the presence of network externalities," Policy Research Working Paper Series 2317, The World Bank. [Downloadable!]
  5. Maarten Janssen & Ewa Mendys-Kamphorst, 2007. "Evolution of market shares with repeated purchases and heterogeneous network externalities," Journal of Evolutionary Economics, Springer, vol. 17(5), pages 551-577, October. [Downloadable!] (restricted)
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