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Causes and Consequences of Market Leadership in Application Software

37 Pages Posted: 30 Jun 1999  

Stan J. Liebowitz

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Stephen E. Margolis

North Carolina State University - Department of Economics

Date Written: April 24, 1999

Abstract

This paper examines several software markets in the hopes of testing various hypotheses that have been put forward in the literature on network effects. Our primary interest focuses on the possibility of lock-in by inferior products due to network effects. We also examine whether or not these markets provide evidence for winner-take-all results and tipping. We use a case method approach, examining product quality, market shares and prices in the context of major software application markets. We find no support for the lock-in hypothesis, no support for tipping, but support for winner-take-all. It is unclear, however, whether this winner-take-all result is due to network effects or other factors such as instant scalability or economies to scale. We also find that price seems to be play an important role in generating market share only in consumer markets. As a by-product of this work we are able to examine Microsoft's track-record in these markets. We conclude that Microsoft has followed a low price strategy, more so after they have achieved large market shares than while they were attempting to wrest market share from other firms.

JEL Classification: L1, L4, K0, O3

Suggested Citation

Liebowitz, Stan J. and Margolis, Stephen E., Causes and Consequences of Market Leadership in Application Software (April 24, 1999). Available at SSRN: https://ssrn.com/abstract=165069 or http://dx.doi.org/10.2139/ssrn.165069

Stan J. Liebowitz (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

800 W Campbell Road
Mail Station SM 31
Richardson, TX 75080
United States
972-883-2807 (Phone)
972-883-2818 (Fax)

HOME PAGE: http://www.utdallas.edu/~liebowit/

Stephen E. Margolis

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States
919-513-2565 (Phone)

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