Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure
This paper is motivated by two 'stylized facts' concerning the dynamics of diffusion of different technologies competing for the same market niche. a) A stable pattern of market sharing with no overwhelming dominant position is rarely observed in markets with network esternalities. Unbounded increasing returns to adoption are often called for an explanation of this fact. However the argument is generally based on an incorrect interpretation of the Brian Arthur (1990) model. As we show with a simple counterexample unbounded increasing returns are either necessary nor sufficient to lead to technological monopolies even in a stable external environment. b) International diffusion may lead sometimes to different standards in different countries ( the archetypal case is the diffusion of typewriter-computer keyboards - AZERTY vs. QWERTY) or to the diffusion of the same standard in every country (the archetypical example being VCRs - Beta vs. VHS), even without intervention of any regulatory agency. Intuitively when convergence to the same standard is not an accident of history, it is an outcome of the relative weight of international spillovers as compared to nationwide esternalities. The crucial question is: can a model that account for the former fact accommodate also the latter? In this paper, by establishing some mathematical properties of generalized urn schemes, we build on a class of competing technology dynamics models to develop an explanation for the former "fact" and to provide sufficient conditions for convergence to the same or to different technological monopolies in different countries. Our explanation for the empirical tendency to converge to technological monopoly relies on convergence rate differentials to limit market shares: We show that a market can approach a monopoly with a higher speed than it approaches any feasible limit market share where both technologies coexist. Convergence to market sharing, we conclude, is in general so slow that the environment changes before the market share trajectory becomes stable in a neighborhood of its limit. The empirical implication is that among markets with high rate of technological change and increasing returns to to adoption, a prevalence of stable monopolies over stable market sharing should be expected.
|Date of creation:||Mar 1998|
|Date of revision:|
|Contact details of provider:|| Postal: A-2361 Laxenburg|
Web page: http://www.iiasa.ac.at/Publications/Catalog/PUB_ONLINE.html
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.:
- Church, Jeffrey & Gandal, Neil, 1993.
"Complementary network externalities and technological adoption,"
International Journal of Industrial Organization,
Elsevier, vol. 11(2), pages 239-260, June.
- Church, J. & Gandal, N., 1991. "Complementary Network Externalities and Technological Adoption," Papers 5-91, Tel Aviv.
- S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
- A. Bassanini, 1997. "Localized Technological Change and Path-Dependent Growth," Working Papers ir97086, International Institute for Applied Systems Analysis.
- Nicholas Economides, 1997.
"The Economics of Networks,"
Brazilian Electronic Journal of Economics,
Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
- Joseph Farrell & Garth Saloner, 1985.
"Installed Base and Compatibility With Implications for Product Preannouncements,"
385, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joseph Farrell & Garth Saloner, 1986. "Installed Base and Compatibility, With Implications for Product Preannouncements," Working papers 411, Massachusetts Institute of Technology (MIT), Department of Economics.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Cowan, Robin, 1988.
"Nuclear Power Reactors: A Study In Technological Lock-In,"
88-33, C.V. Starr Center for Applied Economics, New York University.
- Cowan, Robin, 1990. "Nuclear Power Reactors: A Study in Technological Lock-in," The Journal of Economic History, Cambridge University Press, vol. 50(03), pages 541-567, September.
- Erik Brynjolfsson & Chris F. Kemerer, 1996.
"Network Externalities in Microcomputer Software: An Econometric Analysis of the Spreadsheet Market,"
INFORMS, vol. 42(12), pages 1627-1647, December.
- Erik Brynjolfsson & Chris F. Kemerer, 1993. "Network Externalities in Microcomputer Software: An Econometric Analysis of the Spreadsheet Market," Working Paper Series 158, MIT Center for Coordination Science.
- Dosi, Giovanni & Ermoliev, Yuri & Kaniovski, Yuri, 1994. "Generalized urn schemes and technological dynamics," Journal of Mathematical Economics, Elsevier, vol. 23(1), pages 1-19, January.
- Joseph Farrell & Garth Saloner, 1984.
"Standardization, Compatibility and Innovation,"
345, Massachusetts Institute of Technology (MIT), Department of Economics.
- Heli Koski, 1999. "The Installed Base Effect: Some Empirical Evidence From The Microcomputer Market," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 8(4), pages 273-310.
- Cowan, Robin, 1991. "Tortoises and Hares: Choice among Technologies of Unknown Merit," Economic Journal, Royal Economic Society, vol. 101(407), pages 801-14, July.
- Kaniovski Yuri M. & Young H. Peyton, 1995. "Learning Dynamics in Games with Stochastic Perturbations," Games and Economic Behavior, Elsevier, vol. 11(2), pages 330-363, November.
- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- 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.
- repec:att:wimass:9521 is not listed on IDEAS
- William A. Brock & Steven N. Durlauf, 1995.
"Discrete Choice with Social Interactions I: Theory,"
NBER Working Papers
5291, National Bureau of Economic Research, Inc.
- William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
- David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
- Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
- Dosi, Giovanni, 1997. "Opportunities, Incentives and the Collective Patterns of Technological Change," Economic Journal, Royal Economic Society, vol. 107(444), pages 1530-47, September.
- Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
- Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
When requesting a correction, please mention this item's handle: RePEc:wop:iasawp:ir98012. 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: (Thomas Krichel)
If references are entirely missing, you can add them using this form.