ECON 1 Lecture Notes - Lecture 11: Vaporware, Externality, Marginal Cost
Document Summary
If the value of a network depends on its size, then interconnection and/or standardization becomes an important. Generally dominant firms: prefer not to interconnect (but: not always anathema to dominant firms) Shapiro and varian: your value = your share * total industry value ( total industry value depends on size of the market/adopting a standard may increase total value: standards war (firm compete to determine the standard) Each player prefers a standard to no standard, but each prefers its own standard to the other"s. Outcome of the negotiations: depend on power of the participants. Official standards bodies (+ experience and authority; - slow moving) Small suppliers: also interested in standardization ( diversifies the risk) 2x different strategies for competing in network markets: C = battle between incompatible technologies: standardization. = set of specifications which products must satisfy in order to generate network effects. Envision how the market is with or without standard.
