Conclusions and further research
In many cases, the existence of network effects leads to Pareto-inferior results in markets (i.e. unfavorable outcomes of decentralized standardization processes).
Particularly, excess inertia can occur as no actor is willing to bear the overproportional risk of being the first adopter of a standard; thus, startup problems prevent adoption even of superior products (lock-in, stranding). Also, excess momentum can occur, e.g. if a sponsoring firm uses low prices in early periods of diffusion to attract a critical mass of adopters.
Positive network effects imply multiple equilibria and the (tippy) market will finally lock-in to a monopoly situation.
KeywordsNetwork Effect Standardization Problem Electronic Market Place Coordination Cost Install Base
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