Competing for Dominance in Technology Markets

41 Pages Posted: 6 Dec 2023

See all articles by Derek J. Clark

Derek J. Clark

Tromso University Business School

Tapas Kundu

Oslo Metropolitan University

Date Written: November 28, 2023

Abstract

Technology markets are inherently winner-take-all, and competition for dominance can be modeled as a contest. Uncertainty is a common feature of technology contests. A competitor is often uncertain about the set of rivals that it faces, and the entering firms can attempt to influence their winning chances by undertaking a pre-contest action. This may be an investment in a technology or technological improvement, the outcome of which is uncertain. We model this competition as an all-pay auction in which the entry decision is endogenous, and where – upon entry – players may invest in acquiring a better technology; a player’s investment cost is private knowledge, and the outcome of the investment is stochastic. We characterize equilibrium in terms of two thresholds of the cost parameter that determine entry and then investment, and investigate how the equilibrium is affected by uncertainty related to the investment (both the likelihood of success and its return). Our model finds applications in many technology-based markets such as virtual currency mining, mass entertainment, internet technology and wealth management.

Keywords: Contest; Technology; Standards; Investment; Endogenous entry

JEL Classification: D02, D72, D81, D82

Suggested Citation

Clark, Derek J. and Kundu, Tapas, Competing for Dominance in Technology Markets (November 28, 2023). Available at SSRN: https://ssrn.com/abstract=4646946 or http://dx.doi.org/10.2139/ssrn.4646946

Derek J. Clark

Tromso University Business School ( email )

Breivika
Tromsø, NO-9037
Norway

Tapas Kundu (Contact Author)

Oslo Metropolitan University ( email )

Pilestredet 35
Oslo, 0167
Norway

HOME PAGE: http://www.tapaskundu.net

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