Incompatible Entry in Small-World Networks

KAIST Graduate School of Management Working Paper No. 2005-001

41 Pages Posted: 10 Oct 2005

See all articles by Jeho Lee

Jeho Lee

KAIST College of Business

Jaeyong Song

Seoul National University - College of Business Administration

Date Written: May 2005

Abstract

The issue of whether a new incompatible technology can challenge an established technology has been controversial in the literature on network effects. Some argue that such incompatible entry is difficult when the established technology has built up its installed base. Others argue that history reveals many counter-examples. Instant messaging (IM) was, for example, thought to be a classic case of lock-in, but it turned out not to be. This paper argues that this controversy is partly attributable to the overemphasis on installed bases in prior work, where the role of the social network is largely missing in the discussion of network effects. By developing network effects models with various network structures, we offer a resolution to the controversy. We find that degrees of separation, one of the defining properties of small-world networks, affect the difficulty of incompatible entry: The longer the degrees of separation of a customer network, the easier the incompatible entry.

Keywords: Embeddedness, Network, Network effects, Small World, Technology

JEL Classification: C31, C40, O31

Suggested Citation

Lee, Jeho and Song, Jaeyong, Incompatible Entry in Small-World Networks (May 2005). KAIST Graduate School of Management Working Paper No. 2005-001. Available at SSRN: https://ssrn.com/abstract=821924 or http://dx.doi.org/10.2139/ssrn.821924

Jeho Lee (Contact Author)

KAIST College of Business ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 130-722, 130-722
Korea, Republic of (South Korea)
+82 2 958 3678 (Phone)
+82 2 958 3124 (Fax)

HOME PAGE: http://www.kaistgsm.ac.kr

Jaeyong Song

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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