Networks and Standards Flashcards
What are network externalities?
Network externalities occur when the value of a product to a consumer increases with the number of other consumers who use it.
What is path dependence in the context of technology adoption?
Path dependence refers to the way in which small historical events can determine the long-term adoption and lock-in of a technology due to network externalities.
How do network externalities affect consumer choices in technology markets?
Consumers prefer technologies with a larger installed base because they derive more utility from a larger network, leading to a self-reinforcing process of technology adoption.
What are absorbing barriers in the context of network effects?
Absorbing barriers are thresholds beyond which the adoption of a technology becomes self-reinforcing, making it difficult for alternative technologies to gain market share.
What historical examples illustrate the concept of path dependence?
The QWERTY keyboard layout are examples of how initial adoption choices led to widespread market lock-in.
What is the significance of ‘critical mass’ in technology adoption?
A critical mass is a threshold level of adoption that, once surpassed, leads to a rapid increase in the adoption rate of a technology due to network effects, often resulting in market lock-in.
Does the superior technology always become the market standard?
No, due to path dependence and network externalities, the technology that first reaches critical mass, not necessarily the superior one, often becomes the market standard.
What leads to excess momentum?
Early adopters’ decisions can trigger a bandwagon effect, causing subsequent users to adopt a new technology for compatibility reasons, not necessarily because it is superior.
What is “excess momentum” in technology adoption?
Excess momentum occurs when a new technology is adopted more quickly than optimal, leading to rapid standardization even if it is not the best choice for the majority.
What causes excess inertia?
the coordination problem and uncertainty in a networked environment, where each user’s benefit from adopting a technology depends on the number of other adopters.
What is “excess inertia” in technology adoption?
Excess inertia is when adoption of a new, beneficial technology is slower than optimal due to uncertainty among adopters about whether others will also switch, resulting in sticking with the old technology.
How do network externalities influence technology adoption?
Network externalities mean a product’s value to each user increases with the total number of users, affecting individual decisions to adopt based on expected overall adoption.
What is a real-world example of excess momentum?
An example of excess momentum is when a newer version of software becomes standard due to key users switching, forcing others to adopt it for compatibility, not because it’s a significant improvement.
What role do early adopters play in technology markets with network effects?
Early adopters can significantly influence market outcomes by triggering excess inertia or momentum, impacting the overall technology standardisation.
How does compatibility affect consumer choice?
By increasing the perceived utility of products, as they can interact with a larger network of users and services.
