Network Externalities and Long-Run Market Shares
We study a dynamic duopoly model with diferentiated products and network externalities. New consumers appear each period and the value of the product depends on the size of the network in the current and in the previous period, for example due to availability of add-ons or 'software'. Hence, the market outcome of a given period affects the future periods through its effect on installed base. When the products are of equal quality, we analyze whether or not the market chooses one product as a standard, in other words, if the market shares diverge. We compare the market outcome to a planner's problem and identify cases where the planner would choose one product as the standard but the market is unsuccessful in doing so. When products differ in quality, an inferior product may emerge with all of the market share even when the planner would choose the higher quality product, but only when the discount factor is suffciently large.
|Date of creation:||Jan 2005|
|Contact details of provider:|| Postal: Stanford University, Stanford, CA 94305-5015|
Phone: (650) 723-2146
Web page: http://gsbapps.stanford.edu/researchpapers/
More information through EDIRC
References listed on IDEAS
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.
- Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
- 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.
- Christopher Budd & Christopher Harris & John Vickers, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 543-573.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
- Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
- Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769.
- Argenziano, Rossella, 2007. "Differentiated Networks: Equilibrium and Efficiency," Economics Discussion Papers 2646, University of Essex, Department of Economics.
- Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
- Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers.
- Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
- Cabral, L. & Riordan, M., 1992. "The Learning Curve, Market Dominance and Predatory Pricing," Papers 39, Boston University - Industry Studies Programme.
- Luis M.B. Cabral & Michael Riordan, 1992. "The Learning Curve, Market Dominance and Predatory Pricing," Papers 0039, Boston University - Industry Studies Programme.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
- Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
- Nicholas Economides & Fredrick Flyer, 1997. "Compatibility and Market Structure for Network Goods," Working Papers 98-02, New York University, Leonard N. Stern School of Business, Department of Economics. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:1879. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.