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Abstract

We analyze a two-stage non-cooperative game where the firms choose first to adopt (either simultaneously or sequentially) one of two network technologies, and then compete on the market. The two-stage procedure and the assumption that firms have heterogeneous tastes with respect to the technologies lead to a novel treatment of network externalities. In particular, as the network of some firm enlarges, the change in this firm's payoff is shown to depend both on the newcomer's identity and on the composition of the networks and, as a result, is not necessarily positive.

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... This effect can be negative, as in the case of the so-called " game theoretic " models, in which an increase in the number of adopters negatively influences its profitability in the future (Reiganum, 1981), or positive, as in the case of models in which the stock of previous adopters is meant to produce a positive externality. This type of externality has been conceptualised in different ways, for example as a direct or indirect network effect ( Shapiro, 1985, 1994; Farrel and Saloner, 1985), as an informational cascade (Bikhchandani et al., 1992 and 1998; Banerjee, 1992). Finally, a last class of models claims that returns on adoption depends on the position of a particular adopter in the order of adoption. ...
... On the other side, the stock of previous adopters is meant to produce a positive externality. This type of externality has been often conceptualised at least in two ways: as a direct or indirect network effects ( Shapiro, 1985, 1994; Farrel and Saloner, 1985); or as an informational cascade (Bikhchandani et al., 1992 and 1998; Banerjee, 1992; Geroski, 2000). Network effects are considered to be one of the most important sources of increasing returns from adoption ( Shapiro, 1985, 1994; Farrel and Saloner, 1985, David and Greenstein, 1990; Choi and Thum, 1998; Belleflamme, 1998). ...
... This type of externality has been often conceptualised at least in two ways: as a direct or indirect network effects ( Shapiro, 1985, 1994; Farrel and Saloner, 1985); or as an informational cascade (Bikhchandani et al., 1992 and 1998; Banerjee, 1992; Geroski, 2000). Network effects are considered to be one of the most important sources of increasing returns from adoption ( Shapiro, 1985, 1994; Farrel and Saloner, 1985, David and Greenstein, 1990; Choi and Thum, 1998; Belleflamme, 1998). In the presence of network effects, the utility from adoption increases in the number of other adopters that purchase the innovation 2 . ...
Article
We empirically study the factors affecting the timing of adoption of a consumer technology. We account for four possible effects (epidemic, probit, stock, and order effect) in relation to the diffusion of portable digital audio players (DAPs) using an original dataset of several hundred potential adopters from eight European countries and Japan. Our findings suggest that each one of these effects, which are often incorporated into competing models of diffusion, contribute to explain the diffusion of DAPs. Thus while researches informed by a specific approach to the study of innovation diffusion could lead to important results, they also run the risk of accounting for only a part of the phenomenon. This consideration highlights the quest for a more comprehensive approach to diffusion studies.
... However, possessing the right technology may be more profitable than positive externalities from standardization. Examples include the work of Belleflamme (1998), in which the technology itself is more important than the rival's selection, or Axelrod et al. (1995), in which the firm gains competitive advantage if its rival does not add technology. In addition, as argued by scholars (Besen andFarrell 1994, Hauser et al. 2006) for some product categories, factors such as customer preference for differentiated products may impose negative externalities from standardization. ...
... Step 2, both firms make their decisions simultaneously (as in, e.g., Belleflamme 1998). We assume that the technology is being supplied by an exogenous source, and thus it makes sense that both firms are approached by or notice the technology around the same time. ...
... Proposition 2.4 thus displays the existence of symmetric excess inertia, as discussed by Farrell and Saloner (1986) and Belleflamme (1998 coordination mechanism on the part of at least one firm, which is outside the scope of our non-cooperative game. ...
... Some considerations directly emerge from the inspection of (11) and (12). First, when ...
... Other authors have noted that technological differentiation may reduce the market competition and increase profits(Belleflamme, 1998;Kim et al., 2018). ...
Article
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We study how snob consumption externalities (SCEs) affect the adoption of a new technology in a vertically differentiated duopoly. We show that the leader firm does not adopt when SCEs are medium or high. From a social viewpoint, medium SCEs lead to excessive inertia (the leader firm should adopt, but it does not), and high SCEs lead to reverse adoption (the adopter is the wrong firm). Lower SCE thresholds emerge when the innovative step is large. Our findings suggest that selective policies must be implemented to increase market efficiency, including discouraging adoption.
... A major stumbling block to adopting management practices advocated under the umbrella of ECR is that EDI requires compatible computer systems which are expensive to set up and operate. ECR suffered from a lack of what economist's call "network effects" (Belleflamme, 1998;Katz and Shapiro, 1994). Network effects occur in markets for systems when the value of a system to one user is positively affected by another user joining and enlarging the system. ...
... There will not be as many profits to go around and managers will have to find new ways to make money in a truly competitive world. This is consistent with the theory of network creation and network effects (Belleflamme, 1998). As everyones' costs decline in a large efficient network, competition will increase and new networks will arise to define unique niche markets. ...
... Thus, the challenger may replace the incumbent to "lock" the market, which explains the challengers' success. Belleflamme (1998) proposed another explanation in the market of industrial technology. With heterogeneous cost structures both firms may coexist in equilibrium. ...
... Thus, Hanson (2000) suggested that Metcalfe's Law should be modified to reflect the value of communication between individuals. Belleflamme (1998) suggested that network externality exists only locally. Now a question results. ...
Article
An extensive literature review of consumption externalities is presented in this article. The review is classified into four sections: network externality, indirect network externality, congestion externality, and cross-consumer externality. The review of network externality is a fundamental part of this paper. In this paper, we first suggest two dimensions and provide a classification on consumption externalities. Similarities and dissimilarities among them are contrasted. We next review the literature on consumption externalities in four sections. Finally, we raise research opportunities, which can be further explored in four fields.
... Otherwise, technology spillovers become faint between software vendors who adopt very diverse technology structures. Technology spillovers are illustrated by Belleflamme [5], who shows that given two types of technologies, firms' marginal costs decrease in the number of firms adopting the same technology. Wiethaus [6], Moltó et al. [7], Kamien and Zang [8] make an analogous assumption that technology spillovers of two competitive firms are determined by their choices of technology profiles. ...
Article
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Once installed by a larger population of consumers, software products become appealing targets for malicious agents and thus consumers’ security concern increases. Software vendors must balance quality investment for demand improvement and resulting security anxiety, particularly when deciding whether to choose diversified or similar technology with competitors. Technology choice becomes challengeable in that choosing similar technologies can increase the degree of technology spillovers, which, on the other hand, leads to more software vulnerabilities that are shared among vendors’ software products. Considering these elements, this paper analyzes two competitive software vendors’ quality investment for heterogeneous markets composed of a high-end market with particular quality requirement and a low-end market. I reveal that whether vendors target the high-end market or the low-end market, they may benefit from the risk of security threat because it may soften their price competition. An increase in the maximal potential of technology spillovers may harm the high-quality vendor even though it benefits the low-quality vendor. The high-quality vendor always benefits from the degree of technology diversification while the low-quality vendor benefits only if the risk of security is rather high. Meanwhile, I find the two competitive vendors may target the high-end market and the low-end market respectively even though they are symmetric. Furthermore, I show that compared with optimal industry market strategies, the vendors seem reluctant to be aggressive. Hence, the widely discussed argument that aggressive market strategies should be inhibited because of the resulting serious security concern is not always logical.
... We derive a corresponding result for vertically diierentiated products . Belleeamme ( 1998 ) analyses how rms decide which of two technologies to adopt if their marginal costs decrease in the number of rms adopting the same technology . Assuming Cournot competition and exogenously diierenti - ated products , Belleeamme shows that an equilibrium where all rms adopt the same technology is more likely the more diierentiated the products are . ...
Article
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
... There is still some discussion about how signi…cant network externalities are in producing market failures. 1 However, the literature that explores the adoption of technologies (Belle ‡amme, 1998; Kristiansen, 1996), standards and the lock-in of technologies (Witt, 1997; De Bijl and Goyal, 1995), compatibility issues (Baake and Boom, 2001), and product introduction (Katz and Shapiro, 1992) is extensive. We focus on another, less researched, aspect of network externalities: dynamic pricing under demand inertia. ...
Article
This paper analyses dynamic pricing in markets with network externalities. Network externalities imply demand inertia, because the size of a network increases the usefulness of the product for consumers. Because past sales increase current demand, firms have an incentive to set low introductory prices to be able to increase prices as their networks grow. However, in reality we observe decreasing prices. This could be due to other factors dominating the network effects. We use an experimental duopoly market with demand inertia to isolate the effect of network externalities. We find that experimental prices are consistent with real world observations rather than with theoretical predictions. Copyright © 2007 The Economic Society of Australia.
... Under more general assumptions on the demand function, Yi (1998) proved the existence of an agglomeration equilibria when all the firms and all the districts are symmetric, i.e., the requirements of Firm Independence and District Independence are both satisfied. Subsequently, Belleflamme (1998) has shown the existence of a Nash equilibrium in the case of Firm Independence. Belleflamme (2000) introduces a model with heterogeneous players, where, assuming linearity of spillovers (cost-reduction factors), he demonstrates the existence and uniqueness of an agglomeration equilibrium in the case of two districts. ...
Article
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This paper considers a model of district formation that incorporates a notion of regional industrial systems. Each firm chooses its location from the set of existing industrial districts. The heterogeneous firms are distinguished by its "stand alone" district-dependent production and transportation cost.
... A major stumbling block to adopting management practices advocated under the umbrella of ECR is that EDI requires compatible computer systems which are expensive to set up and operate. ECR suffered from a lack Anetwork effects@ that can be realize with multiple users on the same network (Belleflamme 1998;Katz and Shapiro 1994). Under the ECR vision, establishing a set of individual, workable communications networks with computers at all stores that could communicate with computers of all suppliers was asking more than the industry could deliver. ...
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The use of electronic commerce for quality control and cost cutting efficiencies by the food and agricultural industries in the United States is the focus of this paper. The food industry engages in e-commerce through 1. Internet shopping for consumers called Business-to-Consumer (B2C) e?commerce 2. Business-to-business (B2B) Internet market discovery exchanges used by food suppliers at any point in the supply chain, and 3. Business-to-business (B2B) relationships that reduce costs and increase efficiencies in the procurement, storage and delivery of food to retail stores or distribution centers. This third use of e-commerce is the most highly developed and widely adopted. It allows retailers to share information about consumers' purchases and preferences with food manufacturers and farmers and for tracking food products' characteristics, source, and movement from production to consumer. This circle of information allows high quality and consistent products to be consumed at lower prices. This paper is about the development of e-commerce in the food industry, the economic concepts and goals that it meets, and the changes it brings to the industry. E-commerce both fosters and demands vertical coordination. It favors consolidation of firms. It changes the business culture from one of adversarial relationships to one of cooperation and trust. It changes the historical supply chain into a supply/demand loop while it lowers the cost of food. Policy issues arise around monopoly power, privacy, a diminution of variety, and the demise of small, undercapitalized firms.
... An important and key result of our model is the emergence of co-existing technology networks. This finding parallels the findings of Belleflamme [8] and Kauffman and Wang [35], who analyzed network technology adoption under oligopolistic market competition. ...
Article
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We present an economic model that enables the study of incentives for business-to-business (B2B) e-procurement systems investments which permit inventory coordination and improved operational control. We focus on the information technology (IT) adoption behavior of firms in the presence of transaction costs, agency costs and information uncertainty. We conclude that it is appropriate to rethink the prior theory and develop an extended transaction cost theory perspective that incorporates the possibility of shocks. We distinguish among three kinds of B2B e-procurement systems platforms. Proprietary platform procurement systems involve traditional electronic data interchange (EDI) technologies. Open platform procurement systems are associated with e-market Web technologies. Hybrid platforms involve elements of both. We specify an analytical model that captures the key elements of our perspective, including the conditions under which strong conclusions can be made about the likely observed equilibrium e- procurement solutions of the firms. Our results explain the co-existence of both proprietary and open platforms, showing that larger firms tend to adopt costlier procurement technology solutions, such as proprietary EDI which provides greater supply certainty. Smaller firms adopt less costly procurement technologies that entail greater supply uncertainties, such as open platform procurement systems. Two guidelines emerge for practitioners: (1) adoption of standard e-procurement platforms needs to be understood in terms of the controllable risk trade- offs that are offered to small and large firms, and (2) gauging the business value impacts of exogenous shocks is critical to decision making.
... He proved the existence of an agglomeration equilibria in the model that satisfies both firm independence and district independence, i.e., when all the firms and all the districts are symmetric. Subsequently, Belleflamme [22] has shown the existence of a Nash equilibrium in the case of firm independence. Belleflamme [23] introduces a model with heterogeneous players. ...
Article
This paper considers a model of district formation as a local socio-economic system incorporating the mix of local cooperation and competition, termed co-opetition. There are heterogeneous firms distinguished by their “stand-alone” district-dependent production and transportation cost. Every firm chooses its location when its production cost is affected by local socio-economic spillovers generated by other firms in the district. The firms take into account the reciprocal nature of local spillovers: while reducing their own costs, the firms also reduce the costs of their rivals. We show that the location game with a linear demand function yields an equilibrium for any number of firms and districts. We characterize both “agglomeration” equilibria, when all firms locate in one district, and “dispersed” equilibria, when firms locate in different districts. We demonstrate that a dispersed equilibrium can emerge only if firms' and districts' characteristics possess a sufficient degree of heterogeneity.
... Second, an extension of the current model might consider double-sided externalities in a neutral marketplace (Yoo, Choudhary and Mukhopadhyay 2003), where the buyer side and seller side influence each other. Third, it might be interesting to consider firms' participation in multiple exchanges (Belleflamme 1998). This is another fertile area for further research. ...
Conference Paper
This paper explores the private and social desirability of information transparency of a B2B exchange that provides an online platform for information transmission. The abundance of transaction data available on the Internet tends to make information more transparent in B2B electronic markets. In such a transparent environment, it becomes easier for firms to obtain information that may allow them to infer their rivals' costs than in a traditional, opaque market. Then, how does this benefit firms participating in the B2B exchanges? To what extent does information transparency affect consumers and the social welfare in a broader sense? Focusing on the informational effects, this study explores firms' incentives to join a B2B exchange by developing a game-theoretic model under asymmetric information. We then examine its effect on expected profits, consumer surplus, and social welfare. Our results challenge the "information transparency hypothesis" (i.e., open sharing of information in electronic markets is beneficial to all participating firms). In contrast to the popular belief we show that information transparency could be a double-edged sword. Although its overall effect on social welfare is positive, its private desirability is deeply divided between producers and consumers, and even among producers themselves.
... Kim et al. proposed a new standardization framework using network analysis and game theory to estimate the effect and analyze the actual process [36]. They used Belleflamme's two-stage equilibrium model to suggest a new technology centered standard method by implying function of technology differentiation rate and technology preference that was deduced by technology network analysis [37]. In the follow-up study, the case of the standards war between HD-DVD and Blu-ray was analyzed with patent data as an empirical case considering a dynamic framework. ...
Article
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In a given environment, individuals with genetic properties that are appropriate for the environment are more likely to survive or produce more offspring than those who are not. In a standard competition, technical standards suitable for the environment are more likely to win than those that do not. In the 4th wireless telecommunication industry, technology standard Worldwide Interoperability for Microwave Access (WiMAX) and Long Term Evolution (LTE) compete with each other. The early time of the 4th wireless telecommunication industry, WiMAX had been considered as a first-moving technology standard. The first-moving technology standard is very important due to its possibilities to make the players with the standard to be on the advantageous position in the industry. However, potential strong technology standard LTE substituted the position of WiMAX and become surviving technology in the industry. To understand and interpret this standard competition process, we use Evolutionary game theory as its research methodology and consider the quality features and quantitative features of patent. From this research, we find that (1) LTE is more suitable for the environment than WiMAX. So LTE survive from the competition even though LTE is not a first-moving technology standard. (2) In determining surviving technology standard, key consumers can have a much greater impact than a number of suppliers.
... Participants with different or opposite interests may, for instance, be excluded from the coalition. Those who are excluded may go on to form their own committee (Axelrod, Mitchell, Thomas, Bennett, & Bruderer, 1995;Belleflamme, 1998;Bloch, 1995;Economides & Flyer, 1998;Greenlee & Cassiman, 1999). For instance, Bloch (1995) argues that the more firms are direct rivals, the more tempted they are to exclude rivals from their coalition. ...
Conference Paper
The standardization landscape in the information and communication technology industries is fragmented in many different standardization bodies, industry consortia, and alliances. The existence of competing standardization coalitions may prevent coordination on a common standard. There is a lot of debate among practitioners and analysts about whether this fragmentation creates a coordination failure. Competition between standardization coalitions may harm compatibility. It also helps to mitigate coordination failures that occur within industry-wide standardization bodies and coalitions. The negotiation process in a coalition can cause coordination failures of its own. Technology sponsors may insist on their preferred technology being accepted as standard. Their intransigence slows down the selection of a standard. Introducing competition between coalitions can speed up negotiations within them, and thus help to overcome this infra-committee coordination failure. A game theoretic model formalises this view. It explores the effect of competition between coalitions on the speed of decision-making and standardization. It finds that a fear for incompatibility may hold back competing committees to the point that a grand coalition may actually adopt a standard faster than competing committees would. This result debunks sweeping statements that industry-wide coalitions or standards bodies are necessarily slow compared to strategic alliances and consortia.
... The key dependency, as we will shortly show, is firm size. The emergence of co-existing networks in our examination is paralleled by the findings of Belleflamme [4], whose work examined network technology adoption under oligopolistic competition market structures. In contrast to our results for B2B ecommerce technology platform adoption, which emerge from the trade-off between procurement costs and supply uncertainties, Belleflamme's results depend on the degree of product substitutability that is observed in the market. ...
Article
Full-text available
This article presents an economic model of a monopoly retailer with supply and demand uncertainties that enables the study of incentives for B2B e-procurement technology investments that permit inventory coordination and operating cost control. In this context, we focus on the information technology (IT) adoption behavior of firms, emphasizing the trade-offs they make between managing supply procurement uncertainties and procurement costs. We distinguish among three kinds of B2B e-procurement technology platforms: traditional interorganizational systems (IOSs), open B2B platforms (especially electronic markets), and hybrid solutions. We find that larger firms tend to adopt costlier, but rely upon more certain procurement technologies, such as proprietary EDI. Smaller firms tend to adopt less costly procurement technologies that entail greater supply uncertainties, such as open B2B procurement platforms.
... The key dependency, as we will shortly show, is firm size. The emergence of co-existing networks in our examination is paralleled by the findings of Belleflamme [4], whose work examined network technology adoption under oligopolistic competition market structures. In contrast to our results for B2B e-commerce technology platform adoption, which emerge from the trade-off between procurement costs and supply uncertainties, Belleflamme's results depend on the degree of product substitutability that is observed in the market. ...
Article
Full-text available
This article presents an economic model of a monopoly retailer that enables the study of incentives for business-to-business (B2B) e-procurement technology investments that permit inventory coordination and improved operational control. We focus on the information technology (IT) adoption behavior of firms in the presence of agency costs and information uncertainty. We distinguish among three kinds of B2B e- procurement technology platforms that can be selected: traditional interorganizational systems (IOSs), open B2B platforms associated with electronic markets on the Internet, and hybrid solutions. We find that larger firms tend to adopt costlier, but rely upon more certain procurement technologies, such as proprietary EDI. Smaller firms tend to adopt less costly procurement technologies that entail greater supply uncertainties, such as open B2B procurement platforms.
... A major stumbling block to adopting management practices advocated under the umbrella of ECR is that EDI requires compatible computer systems which are expensive to set up and operate. ECR suffered from a lack of what economist's call "network effects" (Belleflamme, 1998;Katz and Shapiro, 1994). ...
... For this model the market demand equation is obtained based on a quadratic consumer utility function (such as in Bloch (1995) and Belleflamme (1998)) containing network effects (as suggested by Katz and Shapiro (1985)): ...
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This paper considers the problem of standard-creating coalition formation in an oligopoly. Cooperative R&D investments with the aim to improve product quality are explicitly taken into account. We obtain the following results. If both the strength of network effects and the degree of product substitutability are weak, no stable standard coalition is feasible and it is also socially optimal not to create a standard. However, with strong network effects and product substitutability the grand coalition is the stable equilibrium, which is also socially optimal. In between these limits a multiple-standards coalition structure can be a stable equilibrium, although from a welfare perspective it would be best to create one common standard. If a stable equilibrium contains multiple standards, the firms invest more in R&D than in the case of the grand coalition. It is shown that competition among standards stimulates quality improving innovation.
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This paper has analyzed the impacts of network externality and switching costs on the evolution of a network industry and its market structure given heterogeneous consumers. By simulation exercises, we first found that it is switching costs that explain the coexistence of two different products despite the network effect. In fact, we have determined that the market is always monopolized either by the incumbent or the entrant if there is virtually no switching cost. We have also found that in most cases, the higher network effect and higher switching costs tend to work against the entry firm. However, switching cost also helps the new firm upon its entry to survive in the market, although with very small shares. In general, at a high level of network externality and switching cost, the market is dominated by the incumbent, whereas at a low level of network externality and switching cost, the market is dominated by new entrants. Moreover, at the medium level of switching cost and network externality, the market tends to be contestable or very turbulent. Although the market is contestable at high and low combinations, we generally find that the concentration ratios are lower in high switching cost and low network externality combinations, compared with low switching cost and high network externality combinations. This pattern implies that network externality acts as a positive feedback mechanism, that is, by reinforcing the winners, whereas a switching cost does not act as positive feedback.
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Switching costs and network effects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in efficiency, and gives vendors lucrative ex post market power – over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects. Firms compete ex ante for this ex post power, using penetration pricing, introductory offers, and price wars. Such “competition for the market” or “life-cycle competition” can adequately replace ordinary compatible competition, and can even be fiercer than compatible competition by weakening differentiation. More often, however, incompatible competition not only involves direct efficiency losses but also softens competition and magnifies incumbency advantages. With network effects, established firms have little incentive to offer better deals when buyers' and complementors' expectations hinge on non-efficiency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive offers and random events, it later “tips” to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry. Because of these competitive effects, even inefficient incompatible competition is often more profitable than compatible competition, especially for dominant firms with installed-base or expectational advantages. Thus firms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.
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In the wide attention for the so-called ' new economy' , two, not necessarily compatible, issues meet the eye. Firstly, most discussions apply macro-economic concepts, yet secondly their general gist is that the new economy demands new tools for analysis. In this paper, the existing micro-economic tool-kit is searched for theories with which a grip on economics associated with digitalized information is possible. To that end we introduce the distinction between commodity-information, information-commodities and information-infrastructure. It allows for an application of micro- economic insights in various market structures and their welfare consequences to the new economy. Commodity-information is likely to facilitate coordination issues, and thereby has the potential to increase welfare. To fully exploit this potential, however, concerns related to the reliability of information and the confidence in buyers and sellers have to be dealt with. Information- commodities, on the other hand, carry characteristics that may create natural monopolies. The same is true for aspects of the information-infrastructure. Market developments in both categories are to be kept in check by government, so that the great world-wide-welfare potential of the new economy can materialize.
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I study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market. According to previous analyses, only the grand coalition forms at the Nash equilibrium of such games. I show that this result hinges on the assumption of symmetric firms. I therefore introduce asymmetric firms in a game where only two associations can form. I demonstrate that there exists a coalition-proof Nash equilibrium coalition structure in this game, and that when the equilibrium involves two associations, all the members of an association have a higher taste for this association than all nonmembers do. Journal of Economic Literature Classification Numbers: C70, C72, L13.
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Thesis (doctoral)--University of Hamburg.
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This paper provides a selective survey of recent approaches to coalition and network formation in industrial organization, and offers a unified framework in which the different approaches can be compared. We focus on two extreme forms of cooperation--collusive agreements and cost-reducing alliances. We show that bilateral negotiations yield higher levels of cooperation than multilateral agreements, that the formation of a cartel depends on the sequentiality of the procedure of coalition formation, and that the size of alliances depends on the membership rule. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Purpose This paper aims to explore the evolution mechanism of resources in a standard alliance that are matched with resources required at different standardization stages from the viewpoint of dynamic matching. How core enterprises in an alliance allocate resources, select member enterprises and maintain the normal operation of an alliance, according to the resource evolution of a standard alliance, is an important issue when dealing with the implementation of technology standardization. Design/methodology/approach The authors have chosen the Intelligent Grouping and Resource Sharing (IGRS) standard alliance of computer companies in China as the object of this study. The authors have built indices to identify core enterprises in the alliance from the viewpoint of network organization. The authors also collected data from authoritative news websites concerning patents and cooperative projects undertaken by 216 enterprises in the IGRS alliance during the period from 2002 to 2016, and they have computed and analyzed these data by using UCINET 6.0 software and social network analysis methodology to identify core enterprises at different standardization stages, thus revealing the evolution mechanism for resources in the standard alliance. Findings Technology standardization is divided into R&D, industrialization and marketization stages, and the standard alliance requires different resources to satisfy what is required at each of those different standardization stages. While technology standardization is a process during which technology systems standards are continuously being perfected and the standard product market is continuously expanding, the development of technology standardization affects the evolutionary processes of the core enterprises and affects the selection of member enterprises in the standard alliance. Practical implications The results obtained will assist the standard alliance to select proper member enterprises and dynamically match the alliance’s resources with the resources required at different standardization stages to speed up the implementation of independent standardization in China. Originality/value This study demonstrates the evolution mechanism of resources in technology standard alliances at different standardization stages by using quantitative analysis methodology, and it enriches the research on which elements are influential for technology standardization’s development in the context of China’s social, economic and cultural characteristics.
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As more technologies and industries converge, technology standards are more likely to be a strategic factor for firms and governments that are interested in the market with standards-based competition. From the previous research, a new standardisation framework was proposed by combining network analysis and the game theory model but was constrained by feasibility and dynamic approach. In this study, the case of the standards war between HD-DVD and Blu-ray was analyzed with patent data as an empirical case considering a dynamic framework. With this framework, we observed a change in a firm’s technology relations and could predict the decline in a firm’s preference and the shift of equilibrium ahead of Toshiba’s resignation.
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We provide a selective overview of the literature on standardization. We first summarize the essential mechanisms underlying the economics of product compatibility and in so doing we review the various frameworks that have been used. Then we survey existing work about the consequences of compatibility on entry deterrence and technological progress. We finally investigate some implications of the literature for trade policy in the presence of network externalities and suggest some directions for future research.
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We examine the incentives of firms to form coalitions based on adherence to common technical standards. Many network goods as well as non-network goods with close complements exhibit "network externalities" -- i.e., the value of such goods increases with the size of sales of compatible products. Thus, firms have incentives to be in coalitions of compatible goods that share the same technical "standards." This incentive contrasts with the traditional incentive to differentiate each product and be a dominant player in a particular market "niche." This paper analyzes the interaction of these opposite incentives in the creation of technical standards coalitions. Despite no inherent differences in the features of the products and no cost differences, we find that often at equilibrium the market is highly concentrated with coalitions of widely varying sizes charging very different prices.
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We analyze technology adoption in industries where network externalities are significant. The pattern of adoption depends on whether technologies are sponsored. A sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it. Key findings include the following: (1) compatibility tends to be undersupplied by the market, but excessive standardization can occur; (2) in the absence of sponsors, the technology superior today has a strategic advantage and is likely to dominate the market; (3) when one of two rival technologies is sponsored, that technology has a strategic advantage and may be adopted even if it is inferior; (4) when two competing technologies both are sponsored, the technology that will be superior tomorrow has a strategic advantage.
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The formulation of associations of firms in an oligopoly with linear demand is analyzed as a two-stage noncooperative game. In the first stage, firms form associations in order to decrease their costs, and in the second stage they compete on the market. Examples of associations include R&D joint ventures and groups of firms adopting common standards. In equilibrium, the associations formed exhibit two general features: they are asymmetric and inefficient.
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The authors study the introduction of a new product in a market with network externalities. There is a common presumption that such markets exhibit excess inertia, i.e., that they are biased toward existing products. In contrast, the authors provide conditions under which equilibrium involves insufficient friction, i.e., a tendency to rush into new, incompatible technologies. They also analyze the firms' incentives to make their products compatible and they show that the firm introducing the new technology is biased against compatibility. Copyright 1992 by Blackwell Publishing Ltd.
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This paper discusses firm behavior, market performance, and the public and private institutions that arise in systems markets, i.e., markets where consumers use compatible components together to generate benefits. In such markets, which include communications networks and 'hardware/software' networks, popular products are inherently more valuable. These 'network effects' can drive corporate strategies and are critical in understanding innovation in many high-technology markets. The discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects, competition between incompatible systems, and how suppliers choose which components are compatible and which are not. Copyright 1994 by American Economic Association.
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This paper discusses the dynamic implications of learning in a large population coordination game, focusing on the structure of the matching process that describes how players meet. As in M. Kandori, G. Mailath, and R. Rob (1992), experimentation and myopia create 'evolutionary' forces that lead players to coordinate on the risk dominant equilibrium. To describe play with finite time horizons, it is necessary to consider the rates at which the dynamic systems converge. In large populations with uniform matching, play is determined largely by historical factors. When players interact with small sets of neighbors, evolutionary forces may determine the outcome. Copyright 1993 by The Econometric Society.
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This paper examines the dynamics of allocation under increasing returns within a model where agents choose between technologies competing for adoption and where each technology improves as it gains in adoption. It shows that the economy, over time, can become locked-in, by "random" historical events, to a technological path that is not necessarily efficient, not possible to predict from usual knowledge of supply and demand functions, and not easy to change by standard tax or subsidy policies. Rational expectations about future agents' technology choices can exacerbate this lock-in tendency. It discusses the implications for economic history, policy, and forecasting. Copyright 1989 by Royal Economic Society.
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We briefly review the rationale behind technological alliances and provide a snapshot of their role in global competition, especially insofar as it is based around intellectual capital. They nicely illustrate the increased importance of horizontal agreements and thus establish the relevance of the topic. We move on to discuss the organisation of industries in a dynamic context and draw out consequences for competition policy. We conclude with an outlook on the underlying tensions between technology alliances, competition policy, and industrial policy.
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Converters, emulators, or adapters can often make one technology partially compatible with another. The authors analyze the equilibrium market adoption of otherwise incompatible technologies when such converters are available and the incentives to provide them. While market outcomes without converters are often inefficient, the availability of converters can actually make matters worse. The authors also find that when one of the technologies is supplied only by a single firm, that firm may have an incentive to make conversion costly. This may lend some theoretical support to allegations of anticompetitive disruption of interface standards. Copyright 1992 by Blackwell Publishing Ltd.
Competition with lock-in Telecommunications Demand Modelling. An Integrated View ´ r444 P Standardization, compatibility and innovation
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Foray, D., 1995. Coalitions and committees: How users get involved in information technology (IT) standardization. In: Hawkins, R., Mansell, R., Skea, J. (Eds.), Standards, Innovation and Competitiveness. The Policies and Economics of Standards in Natural and Technical Environments, Edward Elgar, Aldershot, UK, pp. 192-212.
On the stability of geographical production patterns—the role of heterogeneity and externalities, Working Paper
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Auriol, E., Benaım, M., 1994. Network externalities and market structure: A dynamical approach, Working Paper, Universite de Toulouse, G.R.E.M.A.Q.
On the stability of geographical production patterns-the role of heterogeneity and externalities
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Schmutzler, A., 1995. On the stability of geographical production patterns-the role of heterogeneitÿ and externalities, Working Paper, Alfred-Weber-Insitut, Universitat Heidelberg.