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Sequential product positioning in the presence of an asymmetric network externality intensity

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  • Ryoichi Saito
  • Nobuo Matsubayashi

Abstract

In this study, we analyze the sequential decisions on product positioning of two firms in the presence of network externalities. One commonly accepted phenomena in a market where a network externality arises is the first†mover advantage, in which the first entrant into a market can earn a higher profit than later entrants. However, in some recent online services markets, we see that the second mover earns a higher profit than the first mover. This occurs because the second mover strengthens its variety of available functions and services markedly, thereby facilitating consumers' work and communication with its main product, which we call network externality intensity. Based on this observation, we analyze sequential positioning in Hotelling's framework by incorporating an asymmetric network externality intensity between firms. We show that unlike the results of previous related studies, both first†and second†mover advantages can appear in the equilibrium depending on the relationship of the network externality intensity between firms; further, they do not change monotonically with the level of network externality intensity.

Suggested Citation

  • Ryoichi Saito & Nobuo Matsubayashi, 2018. "Sequential product positioning in the presence of an asymmetric network externality intensity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(3), pages 320-334, April.
    • Handle: RePEc:wly:mgtdec:v:39:y:2018:i:3:p:320-334
    DOI: 10.1002/mde.2906
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    Cited by:

    1. Tolotti, Marco & Yepez, Jorge, 2020. "Hotelling-Bertrand duopoly competition under firm-specific network effects," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 105-128.
    2. Wang, Wei & Lyu, Gaoyan, 2020. "Sequential product positioning on a platform in the presence of network effects," International Journal of Production Economics, Elsevier, vol. 229(C).
    3. Kangsik Choi & DongJoon Lee, 2022. "Network externalities and endogenous timing in managerial firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1462-1475, July.

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