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| Author: | Katz, M. L. Shapiro, C. |
| Title: | Product introduction with network externalities |
| Journal: | Journal of Industrial Economics
1992 : MAR, VOL. 40:1, p.55-83 |
| Index terms: | NETWORKS EXTERNALITIES NEW PRODUCTS ENTRY CONDITIONS TECHNOLOGICAL INNOVATION SOCIAL WELFARE |
| Language: | eng |
| Abstract: | There is a common presumption that markets with network externalities exhibit excess inertia, i.e. that they are biased towards existing products. In contrast, the conditions are presented under which equilibrium involves insufficient friction, i.e. a tendency to rush into new, incompatible technologies. The firms' incentives to make their products compatible are also analyzed. It is shown that the firm introducing the new technology is biased against compatibility. The pattern of pricing and consumer adoption decisions when an older technology with an installed base competes against a newer technology lacking such a base is determined. Several related question on social welfare effects are asked and answered. |
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