Lock-ins in Network Effect Markets – Results of a Simulation Study

Tobias Draisbach, Thomas Widjaja and Peter Buxmann

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Adoption processes in network effect markets – like the ICT industry – often lead to so-called “lock-ins” which means that one single standard or technology gets adopted by almost all market participants. Based on the work of Arthur [1] we present a simulation based model explaining a market’s tendency to lock-in by means of two factors: the strength of network effects and the network topology of potential adopters. In order to obtain a better understanding of the interconnection of the actors’ decisions we developed an approach to compare markets that show the same network effect strength but face different actor network topologies. We found that the predisposition of a market to show a lock-in induced by network effects generally increases with growing network effect strength and network density. However, our analysis shows that the way these two factors affect a market’s tendency to lock-in varies between random topologies and real life social topologies.

Date: 2013-01
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:59289

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