Reconsideration of the winner-take-all hypothesis: complex networks and local bias

Reconsideration of the winner-take-all hypothesis: complex networks and local bias

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Article ID: iaor20081183
Country: United States
Volume: 52
Issue: 12
Start Page Number: 1838
End Page Number: 1848
Publication Date: Dec 2006
Journal: Management Science
Authors: , ,
Keywords: organization
Abstract:

The literature on network effects has popularized a hypothesis that competition between incompatible technologies results in the ‘winner-take-all’ outcome. For the survival of the firm in this sort of competition, the installed base has been emphasized. We argue that the validity of this hypothesis depends on how customers interact with one another (e.g., if they exchange advice or files). In some interaction networks, customers influenced by their acquaintances may adopt a lagging technology even when a lead technology has built a large installed base. The presence of such a local bias facilitates the persistence of incompatibilities. When local bias cannot be sustained in other interaction networks, one technology corners the market. Our study suggests that overemphasizing the installed base, while ignoring network structure, could mislead practitioners.

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