Adoption of Superior Technology in Markets with Heterogeneous Network Externalities and Price Competition
AbstractIn this paper we investigate whether markets with heterogeneous network externalities can belocked-in by old technologies even if superior technologies are available. Heterogeneous networkexternalities are present when some consumers care more about the size of the market share of agood than others. Interestingly, the answer depends on the quality difference between the old andthe new technology and on whether firms compete in prices. Without price competition, a partiallock-in occurs if (and only if) the quality difference is small. In the presence of price competition,lock-in in the traditional sense completely disappears, although the old technology may keepsome market share in some periods as the new technology is priced higher in equilibrium.
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Date of creation: 23 Oct 2000
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technology adoption; network externalities; lock-in; price competition;
Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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