A Study on the Interaction between Network Effects and Standardization

The economics theory of network effects takes a very important role in the economics field with the revolution of ICT (Information Communication Technology). It focuses on the unique characteristics of ICT products differing from other products, the influence of network effects on the market structure, the firms' behaviors and performance of the ICT industry. In the ICT industry, the competition of technological standards usually results in the market situation of "the winner takes all" because of the characteristics of network effects. Therefore, the effectiveness of deploying competition strategies is a critical point to the firm. The interaction between network effects and standardization is described in this paper. It is shown that the competition strategies in firms are affected sensitively by the standardization in the markets with very strong network effects. Also the proper opportunity and route of technological choice in the markets with the same condition are pointed out. In addition, Chinese 3G policies are investigated according to the references mentioned above.