Competing Networks and Proprietary Standards: The Case of Quadraphonic Sound

Postrel, Steven

doi:10.2307/2098492

Cited by 53 publications

(28 citation statements)

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“…The effect of lower adoption incentives however can be offset by the increased variety in the market, increasing the likelihood of early adopters for any new technology. Kretschmer's (2003a) result formalizes the intuition put forward by Postrel (1990) Besen and Farrell (1994) refer to as the 'pesky little brother' phenomenon: The larger firm prefers to be incompatible in order to preserve its network advantage, while the smaller firm wants exactly the opposite. 20 Gandal (1994), Brynjolfsson and Kemerer (1996) and Sarnikar (2002) use hedonic price regressions to capture network effects through compatibility in the spreadsheet and graphics applications market, respectively.…”

Section: Across-generation Market Structuresupporting

confidence: 55%

“…This result from the early theoretical literature has been documented in case studies and empirical studies and seems to hold true up to a certain degree: There is a single format of VCRs (Park, 2003, Ohashi, 2003, all CD players and CDs are compatible with each other (Gandal, Kende andRob, 2000, Gamharter, 2003), and stereo sound remains the standard for all hi-fi sets (Postrel, 1990). There are exceptions to this rule, however:…”

Section: Within-generation Market Structurementioning

confidence: 92%

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Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications

Koski¹,

Kretschmer

2004

Journal of Industry, Competition and Trade

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Section: Across-generation Market Structuresupporting

confidence: 55%

Section: Within-generation Market Structurementioning

confidence: 92%

Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications

Koski¹,

Kretschmer

2004

Journal of Industry, Competition and Trade

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“…2 David and Greenstein (1990) is a good reference on the case literature prior to 1990. The case studies in Besen and Johnson (1986), Gabel (1987Gabel ( , 1991, Postrel (1990) and Grindley (1995) are also informative. Kahin and Abbate (1995) contains case studies that also focus on the institutional setting surrounding industry standards bodies.…”

Section: Introductionmentioning

confidence: 99%

The Economics of Standards Wars

Stango¹

2004

Review of Network Economics

116

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“…Postrel (1990) argued that quadraphonic sound in the 1970s failed because competing rms sponsored incompatible quad systems and because hardware producers did not adequately manage complements (recorded music). Rohlfs (2001) describes how competing incompatible fax systems (invented in 1843) stalled for over a century until consensus standardization in the late 1970s.…”

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confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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PRELIMINARY DRAFT: PLEASE SEND COMMENTSKEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market imperfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon AbstractSwitching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects.Firms compete ex ante for this ex post power, using penetration pricing, introductory o ers, and price wars. Such \competition for the market" or \life-cycle competition" can adequately replace ordinary compatible competition, and can even be ercer than compatible competition by weakening di erentiation. More often, however, incompatible competition not only involves direct e ciency losses but also softens competition and magni es incumbency advantages. With network e ects, established rms have little incentive to o er better deals when buyers' and complementors' expectations hinge on non-e ciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive o ers and random events, it later \tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry.Because of these competitive e ects, even ine cient incompatible competition is often more pro table than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus rms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

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Competing Networks and Proprietary Standards: The Case of Quadraphonic Sound

Cited by 53 publications

References 1 publication

Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications

Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications

The Economics of Standards Wars

Coordination and Lock-In: Competition with Switching Costs and Network Effects

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