Session 6 - Session 6 Cooperation Compatibility and...

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Session 6: Cooperation, Compatibility, and Switching Costs Bin Gu, Ph.D. Assistant Professor of IM [email protected] Ph: 512-471-1582; Fax: 512-471-0587
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Next Class Reading Microsoft Case Refer to BB for additional material Metcalfe’s Law Value of network of size n proportional to n 2
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One Sided vs. Two Sided Networks Example Fax and fax machines VCRs and tapes Which one is a one-sided network and which one is two-sided network Metcalfe’s Law Value of network of size n proportional to n 2
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Examples of Network Externalities RR gauges AC v. DC Telephone networks HD TV
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Lock-In and Switching Costs Network effects lead to substantial collective switching costs Even worse than individual lock-in Due to coordination costs Example: QWERTY
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Strategy: Igniting Positive Feedback New network Subsidizing early adoption BlueRay vs. HD DVD Providing complementary products
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Session 6 - Session 6 Cooperation Compatibility and...

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