The Role of Network Externalities in the U.S. Vcr Market in 1978-86

Abstract

This paper estimates the importance of network externalities in the U.S. VCR market between 1978-86. Estimation reveals the significant role of networks in the format competition between VHS and Beta. The paper also finds that if Sony, a major Beta supplier, had aggressively introduced its VCRs at the early stage of competition, Beta would have dominated the market in 1985, contrary to the fact that the format exited in 1989. Finally the paper measures consumer welfare for the value of network externalities in VCRs.

Keywords: Network Externalities, Video Cassette Recorders, format competition

JEL Classification: C23, L13, L68