(The) model of spatial technology competition

Abstract

Network externalities, especially aspects of positive feedbacks are the key notions of the New Economy. Many researchers have examined them in various directions from the demand side to supply side to cover almost all realm of the economics, however, most their studies are theoretical. There is little empirical research, and it is simply tested the real data to validate the existing theoretical implications. The previous studies have kept one common assumption firmly: the installed base assumption. The consumer network has been treated as a simple pool of people in the previous research. The factors influencing the consumer purchase choice are composed not only of global network externalities on the basis of the installed base but also of local network externalities originating from interaction between close neighborhoods. Local network interaction is stated in several papers. But there is no attempt to explain it closely. As in traditional episodes such as railroad gauge standardization in the U.S, and the AC vs. DC power case, local networks have evolved to approach global networks as some technologies developed. In relation to the local network concept, the social networks such as acquaintance networks are being studied seriously. In this paper, the existence of the local network externalities, and the transition from local to global network externalities as spatial coupling increases, are proven. Other than social networks, physical and geographical networks are easier and more concrete to verify. By means of the simulation, implemented by the Swarm Simulation Toolkit, the modified Arthur``s technology competition model is tested for these purposes. Arthur``s global externalities model plus some local factors is simple but clear for verifying the existence and the behavior of local externalities. This research focuses on the demand side spatial compe.tition in order to prove the transition phenomenon. For obtaining more realistic implications, the supply si...