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Network Externalities and Standardization: A Classroom Demonstration

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  • Christopher Ruebeck
  • Sarah Stafford
  • Nicola Tynan
  • William Alpert
  • Gwendolyn Ball
  • Bridget Butkevich

Abstract

This paper presents a classroom game that can be used to demonstrate network externalities, standardization, and switching costs. In the basic game, students independently choose a technology whose value depends on the total number of students choosing that technology. In the next round, sequential decision making is allowed that quickly leads to standardization. Introducing imperfect information and switching costs into subsequent rounds can lead to the real‐world phenomenon of an inferior technology becoming the standard. This exercise can be used in principles of economics classes to teach these important concepts without requiring mathematical models. In more advanced classes, construction of the mathematical model behind the game may be assigned.

Suggested Citation

  • Christopher Ruebeck & Sarah Stafford & Nicola Tynan & William Alpert & Gwendolyn Ball & Bridget Butkevich, 2003. "Network Externalities and Standardization: A Classroom Demonstration," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 1000-1008, April.
    • Handle: RePEc:wly:soecon:v:69:y:2003:i:4:p:1000-1008
    DOI: 10.1002/j.2325-8012.2003.tb00546.x
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    References listed on IDEAS

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    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Mehta, Judith & Starmer, Chris & Sugden, Robert, 1994. "The Nature of Salience: An Experimental Investigation of Pure Coordination Games," American Economic Review, American Economic Association, vol. 84(3), pages 658-673, June.
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    Cited by:

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    2. Elizabeth J. Jensen, 2011. "Teaching Undergraduate Industrial Organization Economics," Chapters, in: Gail M. Hoyt & KimMarie McGoldrick (ed.), International Handbook on Teaching and Learning Economics, chapter 54, Edward Elgar Publishing.

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