1 Stephen M. Maurer Goldman School of Public Policy IT and Public Policy – Oct. 21, 2004.
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1 phen M. Maurer dman School of Public Policy IT and Public Policy – Oct. 21, 2
description
3 Old Economy Externalities Pollution (Negative) Flower Gardens (Positive) Network Externalities “ I Care If You Use It” How Big Should the Network Be? Lawyers & WordPerfect... Introduction
Transcript of 1 Stephen M. Maurer Goldman School of Public Policy IT and Public Policy – Oct. 21, 2004.
1Stephen M. MaurerGoldman School of Public Policy
IT and Public Policy – Oct. 21, 2004
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Motivating Examples:TCP/IP & Berkeley UnixGSMThe WebThe Browser Wars
etc., etc., etc…
Introduction
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Old Economy ExternalitiesPollution (Negative)Flower Gardens (Positive)
Network Externalities“I Care If You Use It”How Big Should the Network Be?
Lawyers & WordPerfect . . .
Introduction
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1. Direct Network ExternalitiesMS Word
2. Indirect Network ExternalitiesOperating Systems & Games
3. Physical Network ExternalitiesInternet & Telephones
Introduction
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W (p)
Pric
e
Users
Old Economy
Direct
S(p)
D = w(p)
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W (p)
Pric
e
Users
Old Economy
DirectW’ (p)
S(p)
Shifting Demand
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New Economy “I Care if You Use It”D = w(p, n)Multiple Demand CurvesImplications for Efficiency
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Users
Demand
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Users
CompetitionNotes: • Self-Consistency • Multiple Equilibria
P = MC
n1 n2 n3
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Usersn1 n2 n3
Monopoly
MC
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Usersn1 n2 n3
Monopoly
MC
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Usersn1 n2 n3
Monopoly
MC
Direct
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Tactics
User NetworksPenetration PricingConsumers Expectations
HypeVaporwareAttack Ads
Direct
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TacticsCommitment Strategies
Second SourcesIntel, IBM PC
Renouncing MonopolyNetscape Navigator
Investments & AlliancesThe PC
Reputation
Direct
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Tipping
Direct
Network EffectsThe Best Product Doesn’t Always Win!
VHS vs. Beta
R&D EffectsAppropriabilityIncreased Demand
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Tipping
Direct
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Efficiency
Static EfficiencyThe Old Economy AnswerHow Big Should The Network Be?Which Institution Comes Closest?
Dynamic EfficiencyLock-In vs. Stranding
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Usersn1 n2 n3
Efficiency
MC
Direct
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W (p, n1)
W (p,n2)
W (p,n3)
Pric
e
Usersn1 n2 n3
Efficiency
MC
Direct
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EfficiencyMonopoly vs. Competition
Network ExternalitiesPrice & DWLVarietyEconomies of Scale & Duplicated R&D
Is The Competitive Solution Ideal?
Direct
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Efficiency
Stranding vs. Lock-InSwitching Costs Coordination ProblemsAggressive PricingBeta vs. Leaded Gasoline
Direct
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Efficiency
Open Standards“Look and Feel”
Ex Ante vs. Ex Post EfficiencyHow Big Does Π Have to Be?Happy Accidents
Direct
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Consumers Care AboutSupply of a Complementary GoodPlatforms & Applications
Operating Systems and SoftwareConsoles and GamesDVDs and Movies
Indirect
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MorePlatforms
MoreApplications
More Consumers
MorePlatforms
Indirect
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Indirect
Closed StandardsExclusive Licenses
• Games
Open StandardsReducing The Platform’s Power
Should We Protect Interfaces?Happy Accidents
Interoperability
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Physical
Natural MonopoliesHydroelectic DamsMarginal CostCompetitionsCongestion
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Physical NetworksInternet, TelephonesCompetitionCongestion
Opening The NetworkThe Last Mile
Physical
28Stephen M. MaurerGoldman School of Public Policy
IT and Public Policy – Oct. 21, 2004
