Technology Adoption in the Presence of Network Externalities
Abstract
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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Platform markets are prone to winner-take-all outcomes, in which a dominant firm emerges driving competitors out of the business.
“In consequence, platform markets are prone to winter-take-all outcomes, in which a dominant firm emerges driving competitors out of the business (Katz & Shapiro, 1986).”
From Digital platform ecosystems in flux: From proprietary digital platforms to wide-spanning ecosystems (2023) · cites this paper as Katz & Shapiro, 1986
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- Authors
- Katz, M. L., & Shapiro, C.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1986-08
- Volume
- 94
- Issue
- 4
- Pages
- 822-841
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W1989218902
- Cited by
- 2,622
- References
- 1
- Citations by year
- 2026: 35 · 2025: 52 · 2024: 47 · 2023: 83 · 2022: 51 · 2021: 69 · 2020: 74 · 2019: 76 · 2018: 75 · 2017: 74 · 2016: 67 · 2015: 104 · 2014: 93 · 2013: 109 · 2012: 101
- FWCI
- 75.48
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
- Social Sciences › Decision Sciences › Management Science and Operations Research › Innovation Diffusion and Forecasting
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Keywords
- technology adoption, network effects, property rights, compatibility, standardization, technology competition, strategic advantage, market dominance
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