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Adoption of Superior Technology in Markets with Heterogeneous Network Externalities and Price Competition

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Author Info
Maarten C.W. Janssen ()
Ewa Mendys () (Erasmus University Rotterdam)
Abstract

In this paper we investigate whether markets with heterogeneous network externalities can be locked-in by old technologies even if superior technologies are available. Heterogeneous network externalities are present when some consumers care more about the size of the market share of a good than others. Interestingly, the answer depends on the quality difference between the old and the new technology and on whether firms compete in prices. Without price competition, a partial lock-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 keep some market share in some periods as the new technology is priced higher in equilibrium.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-087/1.

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Date of creation: 23 Oct 2000
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Handle: RePEc:dgr:uvatin:20000087

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Related research
Keywords: 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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  13. de Palma, Andre & Leruth, Luc, 1996. "Variable willingness to pay for network externalities with strategic standardization decisions," European Journal of Political Economy, Elsevier, vol. 12(2), pages 235-251, September. [Downloadable!] (restricted)
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