Technological change in the presence of network externalities

Abstract

In the presence of network externalities, some argued that a technology that gets introduced earlier than others tends to stay ahead even though it is an inferior technology. It is so-called the `lock-in`` phenomenon. On the contrary, others noted that empirical observations have shown that many new, incompatible superior technologies are in fact successfully introduced. As cases in point, RISC and Gas Turbine were successfully introduced. This discrepant `lock-in debate provides our research motivation. Why they argue contradictorily? Why do contrary phenomena appear in the real world? This thesis develops a computer simulation model to explore this pivotal theme. Our findings suggest that the difference of social network structure could be a conditioning variable. In other words, under more cliquish network, the possibility of a new entry`` survival is higher because there could exist `niche``. At the outset, RISC infiltrated into the niche of power users round universities. And then, it enlarged its installed base. Similarly, Gas Turbine initially started its evolution in niche of peak power plant. We strongly believe that niche strategy may unlock the lock-in. However, under more random network, we found that the possibility of surviving is lower.