Chapter 6

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Unformatted text preview: hat dominates with network effects can be extremely difficult, especially if the newcomer is not compatible with the established leader. Newcomers will find their technology will need to be so good that it must leapfrog not only the value of the established firm’s tech, but also the perceived stability of the dominant firm, the exchange benefits provided by the existing user base, and the benefits from any product complements. For evidence, just look at how difficult it’s been for rivals to unseat the dominance of Windows. Because of this, network effects might limit the number of rivals that challenge a dominant firm. But the establishment of a dominant standard may actually encourage innovation within the standard, since firms producing complements for the leader have faith the leader will have staying power in the market. QU E S TI ONS AND E XE RC I S E S 1. How is competition in markets where network effects are present different from competition in traditional markets? 2. What are the reasons it is so difficult...
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This document was uploaded on 01/31/2014.

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