Top

Service Business

Published in:

01-06-2008 | Original Paper

Development of a technological competition model in the presence of network effects from the modified law of Metcalfe

Authors: José Ignacio López-Sánchez, José Luis Arroyo-Barrigüete, Domingo Ribeiro

Published in: Service Business | Issue 2/2008

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

The objective of this paper is to propose a new model of competence in presence of network effects. We will introduce some modifications in the Lotka-Volterra model, in order to solve its deficiencies. The main improvement is to introduce a modification of Metcalfe’s Law, what allow us to reflect the effect of congestion externalities. The model’s validation, developed by numerical simulation, confirms that its behaviour is quite similar to that observed in real markets.

next article Services, growth poles and advanced economies

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Even though the majority of network effects that emerge in electronic markets are positive (Shapiro and Varian 1998), there may also emerge negative network effects originating for example from congestion (Zodrow 2003).

Note that although they have identical interpretations, the constant c will not coincide numerically with the constant c´. This is because the model expressed as so much by one is a reparametrisation of the model expressed in the number of users.

In the original model (1) the approach is very similar.

Growth based on the logistical equation, which is characterised by a sigmoidal-type evolution or in “s”.

Although the simulation algorithms are different in each case, in all cases the Runge-Kutta method of order 4 with pass h = 0.001 has been employed for the numerical resolution of equations.

The algorithm proposed stops the simulation when a standard achieves a market share equal to 1 and the other equal to 0, or when the 100 time units are reached.

Amit R, Zott C (2001) Value creation in e-Business. Strateg Manage J 22:493–520CrossRef

Angelelli P, Butler I, Chambouleyron A, Diegues P, Madanes R (2000) Com.ar. La revolución de las tecnologías de la informática y las comunicaciones en Argentina. Instituto de Estudios para la Realidad Argentina (IERAL)

Arroyo JL, López JI (2004). Externalidades de red en la economía digital. Comunicación en el XIV Congreso Nacional ACEDE, Murcia

Arthur BW (1989) Competing technologies, increasing returns and lock-in by historical events. Econ J 99:116–131CrossRef

Arthur BW (1990) Positive feedbacks in the economy. Sci Am 262:92–99CrossRef

Besen MS, Farrell J (1994) Choosing how to compete: strategies and tactics in standardization. J Econ Perspect 8(2):117–131

Briscoe B, Odlyzko A, Tilly B (2006) Metcalfe’s law is wrong. IEEE Spectrum, July, pp 26–31

David PA (1984) Clio and the economics of QWERTY. The American Economic Review. In: Papers and proceedings of the 97th annual meeting of the American Economic Association, pp 332–337

Economides N, Himmelberg C (1995) Critical mass and network evolution in telecommunications. In Gerard Brock (ed), Toward a competitive telecommunications industry: selected papers from the 1994 telecommunications policy research conference. Disponible en Internet en http://www.stern.nyu.edu/networks/tprc.pdf

Economides N (1996a) The economics of networks. Int J Ind Organ 14:673–699CrossRef

Economides N (1996b) Network externalities, complementarities, and invitation to enter. Eur J Pol Econ 12(2):211–233CrossRef

Economides N (2000) Notes on network economics and the new economy. Lecture Notes, Stern School of Business. Disponible en Internet en http://www.stern.nyu.edu/networks/exmba/netnotes2000.pdf

Fuentelsaz L, Maicas JP, Polo Y (2003) Economía digital y estrategia empresarial: Un análisis desde la dirección estratégica. Revista de Empresa 5:54–69

Gandal N (1994) Hedonic prices index for spreadsheets and an empirical test for network externalities. RAND J Econ 25(1):160–170CrossRef

Katz ML, Shapiro C (1985) Network externalities, competition and compatibility. Am Econ Rev 75:424–440

Katz ML, Shapiro C (1986) Technology adoption in the presence of network externalities. J Pol Econ 94:822–841CrossRef

Katz ML, Shapiro C (1992) Product introduction with network externalities. J Ind Econ XL(1):55–83CrossRef

Keilbach M, Posch M (1998) Network externalities and the dynamics of markets. Interim report of the international institute for applied systems analysis ITR-98–089

Loch CH, Huberman BA (1999) A punctuated-equilibrium model of technology diffusion. Manage Sci 45(2):160–177

López L, Sanjuán MAF (2001) Defining strategies to win in the internet market. Physica A 301:512–534CrossRef

Mcgee J, Sammut TA (2002) Network industries in the new economy. Eur Bus J 14(3):116–132

Oren S, Smith S (1982) Nonlinear pricing and network externalities in telecommunications. In: the 6th international conference on computer communication

Oren S, Dhebar A (1985) Optimal dynamics pricing for expanding networks. Mark Sci 4:336–351

Oren S, Smith S, Wilson R (1982) Nonlinear pricing in markets with interdependent demand. Mark Sci 1:287–313

Rohlfs J (1974) A theory of interdependent demand for a communication service. Bell J Econ Manage Sci 5(1):16–37CrossRef

Schilling MA (1998) Technological lockout: An integrative model of the economic and strategic factors driving technology success and failure. Acad Manage Rev 23:267–284CrossRef

Schilling MA (2002) Technology success and failure in winner-take-all markets: The impact of learning orientation, timing and network externalities. Acad Manage J 45:387–398CrossRef

Sevick P (2004) Innovation diffusion. Bus Commun Rev 34(9):8–11

Shapiro C, Varian HR (1998) Information rules: a strategic guide to the network economy. Harvard Business School Press, Boston

Wade J (1995) Dynamics of organizational communities and technological bandwagons: An empirical investigation of community evolution in the microprocessor market. Strateg Manage J 16(Special Issue):111–133CrossRef

Xie J, Sirbu M (1995) Price competition and compatibility in the presence of positive demand externalities. Manage Sci 41:909–926CrossRef

Zodrow GR (2003) Network externalities and indirect tax preferences for electronic commerce. Int Tax Public Financ 10(1):79–97CrossRef

Title: Development of a technological competition model in the presence of network effects from the modified law of Metcalfe
Authors: José Ignacio López-Sánchez
José Luis Arroyo-Barrigüete
Domingo Ribeiro
Publication date: 01-06-2008
Publisher: Springer-Verlag
Published in: Service Business / Issue 2/2008
Print ISSN: 1862-8516
Electronic ISSN: 1862-8508
DOI: https://doi.org/10.1007/s11628-007-0025-z

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 2/2008

Services, growth poles and advanced economies

Fighting off the big guys: comparing competitive retail services strategies in industrialized and developing world settings

Technology strategy and performance: a study of information technology service providers from selected Asian countries

My life as a service-worker

Waiting for service: modelling the effectiveness of service interventions