Reconsideration of the Winner-Take-All Hypothesis: Complex Networks and Local Bias

Eocman Lee (), Jeho Lee () and Jongseok Lee ()
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Eocman Lee: Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-gu, Seoul 190-012, Korea
Jeho Lee: Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-gu, Seoul 190-012, Korea
Jongseok Lee: Department of Business Administration, Hallym University, 39 Hallymdaehak-gil, Chunchon, Kangwon-do 200-702, Korea

Management Science, 2006, vol. 52, issue 12, 1838-1848

Abstract: The literature on network effects has popularized a hypothesis that competition between incompatible technologies results in the "winner-take-all" outcome. For the survival of the firm in this sort of competition, the installed base has been emphasized. We argue that the validity of this hypothesis depends on how customers interact with one another (e.g., if they exchange advice or files). In some interaction networks, customers influenced by their acquaintances may adopt a lagging technology even when a lead technology has built a large installed base. The presence of such a local bias facilitates the persistence of incompatibilities. When local bias cannot be sustained in other interaction networks, one technology corners the market. Our study suggests that overemphasizing the installed base, while ignoring network structure, could mislead practitioners.

Keywords: network externalities; network; increasing returns; technology; complexity (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (57)

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