Exploration and Exploitation in the Presence of Network Externalities
This paper examines the conditions under which exploration of a new, incompatible technologyis conducive to firm growth in the presence of network externalities. In particular, this study is motivated by the divergent evolutions of the PC and the workstation markets in response to a new technology: reduced instruction set computing (RISC). In the PC market, Intel has developed new microprocessors by maintaining compatibility with the established architecture, whereas it was radically replaced by RISC in the workstation market. History indicates that unlike the PC market, the workstation market consisted of a large number of power users, who are less sensitive to compatibility than ordinary users. Our numerical analysis indicates that the exploration of a new, incompatible technology is more likely to increase the chance of firm growth when there are a substantial number of power users or when a new technology is introduced before an established technology takes off.
Volume (Year): 49 (2003)
Issue (Month): 4 (April)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
- Farrell, Joseph & Saloner, Garth, 1992.
"Converters, Compatibility, and the Control of Interfaces,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 40(1), pages 9-35, March.
- Farrell, Joseph, 1989. "Converters, Compatibility, and the Control of Interfaces," Department of Economics, Working Paper Series qt8161p50b, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Garth Saloner., 1989. "Converters, Compatibility, and the Control of Interfaces," Economics Working Papers 89-130, University of California at Berkeley.
- Christensen, Clayton M., 1993. "The Rigid Disk Drive Industry: A History of Commercial and Technological Turbulence," Business History Review, Cambridge University Press, vol. 67(04), pages 531-588, December.
- Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
- Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
- Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
- Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
- David, Paul A. & Bunn, Julie Ann, 1988. "The economics of gateway technologies and network evolution: Lessons from electricity supply history," Information Economics and Policy, Elsevier, vol. 3(2), pages 165-202.
- Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
- Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
- Nelson, Richard R & Winter, Sidney G, 1977. "Simulation of Schumpeterian Competition," American Economic Review, American Economic Association, vol. 67(1), pages 271-276, February.
- Sidney G. Winter, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, Oxford University Press, vol. 85(2), pages 237-261.
- Linda Argote & Sara L. Beckman & Dennis Epple, 1990. "The Persistence and Transfer of Learning in Industrial Settings," Management Science, INFORMS, vol. 36(2), pages 140-154, February.
- Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
- Richard R. Nelson & Sidney G. Winter, 1978. "Forces Generating and Limiting Concentration under Schumpeterian Competition," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 524-548, Autumn. Full references (including those not matched with items on IDEAS)