Re-examining Network Market Strategies from the Perspective of the Local Network: Market Competition between Incompatible Technologies

Abstract

Much of work on network externality assumed network effects are dependent on the network size. Therefore, very little consideration is given to the view that marginal benefits from joining the network may not increase with the network size if consumer benefits come from the direct interaction with neighbors, namely local network. In this study, we used the agent-based simulation method to reexamine the effectiveness of the traditional network market strategy under the presence of the local network where two incompatible technologies compete. We found that the strategy of growing an initial customer base is not effective under the presence of the local network. Our study also showed that targeting customers based on their technology preference is not as effective as targeting customers within the same local network. As a result, the focus of a network market strategy should be directed to taking advantage of the customer network.