Winning while losing: Competition dynamics in the presence of indirect network effects

Sarit Markovich*, Johannes Moenius

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

What determines competition dynamics in markets with indirect network effects? We analyze this question in a dynamic hardware-software framework, where software firms compete in quality upgrades. We identify market structure as a major determinant of competition dynamics. Indirect network effects tie together the performance of firms on the same platform: a successful competitor raises the value of all firms on the same platform, where an unsuccessful firm may enjoy a windfall increase in its market value. In contrast to the tipping result in the literature, we find tendencies toward increasing competition across platforms for a wide range of market structures.

Original languageEnglish (US)
Pages (from-to)346-357
Number of pages12
JournalInternational Journal of Industrial Organization
Volume27
Issue number3
DOIs
StatePublished - May 1 2009

Keywords

  • Competition
  • Dynamics
  • Indirect network effects

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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