Using Experiments in Teaching and Explaining the Role of Network Externalities in Technology Adoption and Industry Evolution

Abstract:     
The experiment explained in this paper helps students to understand the importance of network externalities in the evolution of industries and technology. Complex enough to permit exploration of the role of strategic pricing in network industries, the method is still flexible enough to allow simpler non-strategic illustrations of the network effects. Given prominent examples of network effects in firm and government action (e.g., the advanced television systems committee, antitrust litigation for the credit/debit card industry, and private strategy in the game console and newer DVD technologies (HD DVD vs. Blu-Ray)), this experiment fits well as either an illustration of the idea and its potential importance or a starting point for a more detail studied of the issue.

Number of Pages in PDF File: 34

Keywords: classroom experiments, network externalities, technology adoption

JEL Classification: A22, L15

working papers series