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Technology adoption in markets with network effects: Theory and experimental evidence

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  • Keser, Claudia
  • Suleymanova, Irina
  • Wey, Christian

Abstract

We examine a technology adoption game with network effects in which coordination on technology A and technology B constitute a Nash equilibrium. Coordination on technology B is assumed to be payoff-dominant. We define a technology's critical mass as the minimum share of users necessary to make the choice of this technology a best response for any remaining user. We show that the technology with a lower critical mass is risk-dominant and is chosen by the maximin criterion. We present experimental evidence that both pay-off dominance and risk dominance explain participants' choices. The relative riskiness of a technology can be proxied using technologies' critical masses or stand-alone values. --

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 33.

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Date of creation: 2011
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Handle: RePEc:zbw:dicedp:33

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Keywords: Network Effects; Critical Mass; Coordination; Riskiness;

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  1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  2. Gandal, Neil & Salant, David & Waverman, Leonard, 0. "Standards in wireless telephone networks," Telecommunications Policy, Elsevier, vol. 27(5-6), pages 325-332, June.
  3. Keser, Claudia & Suleymanova, Irina & Wey, Christian, 2012. "Technology adoption in markets with network effects: Theory and experimental evidence," Information Economics and Policy, Elsevier, vol. 24(3), pages 262-276.
  4. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-33, March.
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  8. Irina Suleymanova & Christian Wey, 2008. "Bertrand Competition in Markets with Network Effects and Switching Costs," Discussion Papers of DIW Berlin 796, DIW Berlin, German Institute for Economic Research.
  9. Joseph Farrell & Paul Klemperer, 2006. "Co-ordination and Lock-in: Competition with Switching Costs and Network Effects," Economics Papers 2006-W07, Economics Group, Nuffield College, University of Oxford.
  10. Selten,Reinhard, . "An axiomatic theory of a risk dominance measure for bipolar games with linear incentives," Discussion Paper Serie B 252, University of Bonn, Germany.
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  14. Burton, Anthony & Sefton, Martin, 2004. "Risk, pre-play communication and equilibrium," Games and Economic Behavior, Elsevier, vol. 46(1), pages 23-40, January.
  15. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
  16. Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, vol. 42(2), pages 281-299, February.
  17. Straub, Paul G., 1995. "Risk dominance and coordination failures in static games," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 339-363.
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  19. Carlsson, H. & Van Dame, E., 1991. "Equilibrium Selection in Stag Hunt Games," Papers 9170, Tilburg - Center for Economic Research.
  20. Tom Ross & Russell Cooper & Douglas V. DeJong & Robert Forsythe, 1987. "Selection Criteria in Coordination Games: Some Experimental Results," Carleton Industrial Organization Research Unit (CIORU) 87-04, Carleton University, Department of Economics.
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Citations

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Cited by:
  1. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, vol. 115(1), pages 7-10.
  2. Keser, Claudia & Suleymanova, Irina & Wey, Christian, 2011. "Technology adoption in markets with network effects: Theory and experimental evidence," DICE Discussion Papers 33, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-23, June.
  4. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers 37, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  5. Christin, Clémence, 2011. "Entry deterrence through cooperative R&D over-investment," DICE Discussion Papers 38, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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