Survival in Markets with Network Effects: Product Compatibility and Order-of-Entry Effects

Journal of Marketing, Vol. 74, No. 4, pp. 1-14

Posted: 29 Jan 2009 Last revised: 20 Dec 2013

See all articles by Qi Wang

Qi Wang

China Europe International Business School (CEIBS)

Yubo Chen

Tsinghua University, School of Economics & Management

Jinhong Xie

University of Florida - Warrington College of Business Administration

Date Written: January 21, 2009

Abstract

Although survival is a crucial performance concern for new products in markets with network effects due to high uncertainty and innovation risk in such markets, it has received scant academic attention. This paper investigates pioneers' survival (dis)advantage compared with their early followers in networked markets. We develop a conceptual framework suggesting that a pioneer's survival (dis)advantage is jointly affected by network effects and two fundamentally different types of product compatibility: (1) cross-generation compatibility, and (2) within-generation compatibility. Our empirical study, based on data from 45 markets, reveals some intriguing systematic patterns of contingency of pioneer survival advantage on the two types of compatibility. Specifically, in markets with very weak network effects, the two types of incompatibility affect the pioneer's survival advantage in opposite directions: Cross-generation incompatibility strengthens, but within-generation incompatibility weakens the pioneer's survival advantage. As network effects increase, however, the impact of both incompatibilities becomes weaker in their original directions, and eventually their directions are reversed. Despite the lower average survival duration of pioneers compared to their early followers in these markets, we find that pioneers can have a survival advantage in markets with both strong and weak network effects; however, the two cases require opposite compatibility conditions.

Keywords: Network Effects, Product Compatibility, Order-of-Entry Effects, Survival Analysis

JEL Classification: L10, M30

Suggested Citation

Wang, Qi and Chen, Yubo and Xie, Jinhong, Survival in Markets with Network Effects: Product Compatibility and Order-of-Entry Effects (January 21, 2009). Journal of Marketing, Vol. 74, No. 4, pp. 1-14, Available at SSRN: https://ssrn.com/abstract=1334842

Qi Wang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Yubo Chen

Tsinghua University, School of Economics & Management ( email )

Beijing, 100084
China

Jinhong Xie (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

209 Bryan Hall Campus Box 117155
Gainesville, FL 32611-7166
United States
352-392-0161 Ext. 1233 (Phone)
352-846-0457 (Fax)

HOME PAGE: http://bear.cba.ufl.edu/xie/Xie_DirectoryProfile.htm

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
853
PlumX Metrics