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Reconsideration of the Winner-Take-All Hypothesis: Complex Networks and Local Bias

Author

Listed:
  • Eocman Lee

    (Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-gu, Seoul 190-012, Korea)

  • Jeho Lee

    (Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-gu, Seoul 190-012, Korea)

  • Jongseok Lee

    (Department of Business Administration, Hallym University, 39 Hallymdaehak-gil, Chunchon, Kangwon-do 200-702, Korea)

Abstract

The literature on network effects has popularized a hypothesis that competition between incompatible technologies results in the "winner-take-all" outcome. For the survival of the firm in this sort of competition, the installed base has been emphasized. We argue that the validity of this hypothesis depends on how customers interact with one another (e.g., if they exchange advice or files). In some interaction networks, customers influenced by their acquaintances may adopt a lagging technology even when a lead technology has built a large installed base. The presence of such a local bias facilitates the persistence of incompatibilities. When local bias cannot be sustained in other interaction networks, one technology corners the market. Our study suggests that overemphasizing the installed base, while ignoring network structure, could mislead practitioners.

Suggested Citation

  • Eocman Lee & Jeho Lee & Jongseok Lee, 2006. "Reconsideration of the Winner-Take-All Hypothesis: Complex Networks and Local Bias," Management Science, INFORMS, vol. 52(12), pages 1838-1848, December.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:12:p:1838-1848
    DOI: 10.1287/mnsc.1060.0571
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