Adoption of System Goods (Paperback)

The purpose of our work is to give an overview of the theoretical and empirical literature on direct and indirect network effects and to use the insights gained from this review to develop a model suitable for numerical simulation. This model would allow us to measure the impact of a number of environmental parameters on the adoption process, as well as to the possibility of negative impacts of standardisation, namely the possibility that a technological standard emerges, which later on in the process proves to be inferior, and that the development of the market might depend on stochastic results early on in the development of a market. Based on this review of literature, we develop our own model. Here, consumers belong either to the group of innovators, who do not care for network effects, or to the group of imitators, who take network effects into account. It will be supposed that the incumbent technology was the monopolist, which faces new competition from a competing technology, which has a lower value in direct utility, but a higher growth rate of technology so that it will eventually overtake the incumbent and become the new superior technology.