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Splintering and Inertia in Network Industries

Authors/Editors: Kretschmer, T.
Published: 2008
Type: Articles in Refereed Journals (International)
ISBN/ISSN: 1467-6451
Published by: The Journal of Industrial Economics
: 56(4), pp. 685-706

Winner of the 2001 EARIE Young Economists' Essay Award (YEEA) and the 2001 RES Young Economist of the Year Award.

Abstract

We analyse a stylised game of technology adoption with network effects and two new technologies. Potential adopters can adopt early, late or not at all. We show that one of the reasons for the failure of new technologies can be the presence of multiple incompatible variants of that technology. An adopter's individual incentives to adopt are lower with two technologies than with one. Turning to aggregate expected welfare, we find that two active technologies may be welfare-improving.