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Network effects and social dilemmas in technology industries

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2 Author(s)
Browne, G.J. ; Inf. Syst. & Quantitative Sci., Texas Tech. Univ., Lubbock, TX, USA ; Menon, N.M.

Researchers investigating technology market dynamics have focused primarily on how a firm's economic and marketing strategy for pricing, distribution, packaging , and so on affect the market and the firm's position in it. This perspective reflects a managerial viewpoint, which focuses on maximizing a firm's profits and tends to emphasize short-term outcomes. We take a different view - the social planner's view - of the technology industry, which attempts to maximize total benefits for both firms and consumers over the long run. Network effects (also termed network externalities) impact how these total benefits, or social surplus, evolve over time in technology markets. Applying economic, social science, and biology theories to technology market dynamics, we find that network-effect-sensitive factors such as available capital, innovation, and product variety indicate whether an industry is heading toward healthy expansion or an unhealthy monopoly and ultimate decline. Increasing the social surplus to ensure long-term market health requires proactive measures such as industry self-regulation and government regulation.

Published in:

Software, IEEE  (Volume:21 ,  Issue: 5 )

Date of Publication:

Sept.-Oct. 2004

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