Efficient upgrading in network goods : is commitment always good?

The frequency of upgrades in technology markets is not socially optimal when the quality improvement is negligible and smaller than the adoption cost of the new product. In monopolies, the literature has identifed a suff cient factor for efficient upgrading: the firms power to commit to whether it will upgrade or not in the future. This is not true when an entry threat applies. In fact, it could even be that commitment is a factor of inefficiency when the market is open to competition. As shown in this paper, the incumbentís commitment adds an additional source of inefficiency while an entry threat could dissolve social optimality

Industry Equilibrium with Open Source and Proprietary Firms

We present a model of industry equilibrium to study the coexistence of Open Source (OS) and Proprietary (P) firms. Two novel aspects of the model are: (1) participation in OS arises as the optimal decision of profit-maximizing firms, and (2) OS and P firms may (or may not) coexist in equilibrium. Firms decide their type and investment in R&D, and sell packages composed of a primary good (like software) and a complementary private good. The only difference between both kinds of firms is that OS share their technological advances on the primary good, while P keep their innovations private. The main contribution of the paper is to determine conditions under which OS and P coexist in equilibrium. Interestingly, this equilibrium is characterized by an asymmetric market structure, with a few large P firms and many small OS firms.Industry Equilibrium, Open Source, Innovation, Complementarity, Technology Sharing, Cooperation in R&D

Economic Aspects of the Microsoft Case: Networks, Interoperability and Competition

In this paper, we discuss the main economic aspects of the European Microsoft case; in particular, Microsoft’s refusal to supply the necessary information to make the competitors’ work group server systems interoperable with Windows Operating System. The case can be seen as an example of competition between networks. We review the relevant economics literature with the objective of understanding the motivations behind Microsoft’s strategies.Networks; Complementarities; Foreclosure; Interoperability; Antitrust

Triple Play Time

Abstract: Digital convergence thrusts telephony, television and the internet into the socalled 'triple play' offerings, creating new forms of rivalry between cable operators and telephone companies. Markets participants feel compelled to enter new industries to survive, even though their core competencies are limited to their primary market. The outcome of triple play competition is likely to depend on the speed of the development of new technologies and the adaptation of the regulatory environment. In the short run, telephone companies will enjoy an advantage attributable to switching costs. However, this advantage will erode as younger subscribers switch to telephony on the internet.triple play; bundling; digital convergence; broadband access; television and telephone

A theory-grounded framework of Open Source Software adoption in SMEs

This is a post-peer-review, pre-copyedit version of an article published in European Journal of Information Systems. The definitive publisher-authenticated version Macredie, RD and Mijinyawa, K (2011), "A theory-grounded framework of Open Source Software adoption in SMEs", European Journal of Informations Systems, 20(2), 237-250 is available online at: http://www.palgrave-journals.com/ejis/journal/v20/n2/abs/ejis201060a.html.The increasing popularity and use of Open Source Software (OSS) has led to significant interest from research communities and enterprise practitioners, notably in the small business sector where this type of software offers particular benefits given the financial and human capital constraints faced. However, there has been little focus on developing valid frameworks that enable critical evaluation and common understanding of factors influencing OSS adoption. This paper seeks to address this shortcoming by presenting a theory-grounded framework for exploring these factors and explaining their influence on OSS adoption, with the context of study being small- to medium-sized Information Technology (IT) businesses in the U.K. The framework has implications for this type of business – and, we will suggest, more widely – as a frame of reference for understanding, and as tool for evaluating benefits and challenges in, OSS adoption. It also offers researchers a structured way of investigating adoption issues and a base from which to develop models of OSS adoption. The study reported in this paper used the Decomposed Theory of Planned Behaviour (DTPB) as a basis for the research propositions, with the aim of: (i) developing a framework of empirical factors that influence OSS adoption; and (ii) appraising it through case study evaluation with 10 U.K. Small- to medium-sized enterprises in the IT sector. The demonstration of the capabilities of the framework suggests that it is able to provide a reliable explanation of the complex and subjective factors that influence attitudes, subjective norms and control over the use of OSS. The paper further argues that the DTPB proved useful in this research area and that it can provide a variety of situation-specific insights related to factors that influence the adoption of OSS

Platform Competition with “Must-Have” Components

In platform-component systems with indirect network effects, some components are so popular with consumers that they have strong bargaining positions and can be regarded as “must-have” from the point of view of the platform. For example, ESPN is a must-have component of cable TV platforms. This paper presents a theoretical model to assess how platform market structures affect the likelihood of exclusive versus non-exclusive contracts between platforms and components. The model evaluates the combined impacts of (i) the popularity of the component, (ii) the platform market share difference and (iii) platform technological compatibility on the platform-component contractual arrangements. It shows that a component provider is more likely to sign exclusive access contracts with a single platform if its popularity is high, the platform market share difference is large, and platform compatibility is low.network effects, bargaining, platforms

Competition, Innovation and Intellectual Property Rights in Software Markets

This paper analyzes when it may be desirable for the government to stimulate open source software as a response to market failures in software markets. Our most important finding is that directly stimulating open source software, e.g. by acting as a lead customer, can improve dynamic efficiency if (i) there is a serious customer lock-in problem, while (ii) to develop the software, there is no need to purchase specific, complementary inputs at a substantial cost, and (iii) follow-on innovations are socially valuable but there are impediments to contractual agreements between developers that aim at realizing such innovations.software markets, intellectual property rights, open source software, public policy.

Identification of Network Externalities in Markets for Non-Durables

This paper introduces a structural econometric model of consumer demand for non-durable goods, which exhibits network externalities. The structural model allows us to identify the parameters, which determine the strength of the externalities in the underlying economic model from the empirical estimation results. The estimates of these parameters can then be employed to test the economic significance of the externalities and the compatibility of networks. The identifying assumption that drives our results is that consumers care about the lagged instead of the current network size. We argue that it does not necessarily bound their rationality. To complete our structural model, we provide an example of functional specification that yields a simple linear stochastic model of demand. Using this functional specification, we identify all structural parameters of the model. In the end, the estimation and the stochastic structure of the resulting econometric model are discussed. ZUSAMMENFASSUNG - ( Identifikation der Netzwerkeffekten in den Märkten für nicht-dauerhafte Güter) Der vorliegende Beitrag stellt ein strukturelles ökonometrisches Modell der Konsumnachfrage für nicht-dauerhafte Güter mit externen Netzwerkeffekten vor. Das strukturelle Modell lässt uns die Parameter von Netzwerkeffekten im zugrunde liegenden ökonomischen Modell empirisch zu identifizieren. Die Schätzer der Strukturparameter könnten für das Testen der Netzwerkkompatibilität und der ökonomischen Signifikanz der Netzwerkeffekte verwendet werden. Für die Identifikation nehmen wir an, dass die Konsumenten die Netzwerksgröße verzögert wahrnehmen. Wir argumentieren, dass diese Annahme nicht notwendigerweise mit irrationalem Verhalten gleichzusetzen ist. Um das strukturelle Modell zu vollständigen, geben wir eine funktionale Spezifikation, aus der ein lineares stochastisches Nachfragemodell folgt. Unter Verwendung dieser Spezifikation sind alle Strukturparameter von dem Modell identifiziert. Zum Schluss diskutieren wir die Schätzung und die stochastische Struktur des sich ergebenden ökonometrischen Modells.Structural Econometric Model, Network Externalities, Innovation Diffusion