This preview shows page 114 - 121 out of 127 pages.
Curve shapes are different; Network externality benefits likely to grow logistically, while potential monopoly costs likely to grow exponentially.Where monopoly costs exceed network externality benefits, intervention may be warranted. Optimal market share is at point where lines cross.
115Discussion Questions1.What are some of the sources of increasing returns to adoption?2.What are some examples of industries not mentioned in the chapter that demonstrate increasing returns to adoption? 3.What are some of the ways a firm can try to increase the overall value of its technology, and its likelihood of becoming the dominant design?4.What determines whether an industry is likely to have one or a few dominant designs?5.Are dominant designs good for consumers? Competitors? Complementors? Suppliers?
Chapter 5TIMING OF ENTRY
117From 1990-1993, a flurry of companies began developing PDAs and analysts predicted millions would be sold by 2004.However, market confusion and under-developed enabling technologies slowed PDA adoption. Many PDA companies ran out of money by 1994.The surviving companies included those that specialized in industrial devices, and Palm Computing, which had entered relatively late and produced a streamlined PDA.By 2003, another storm was on the horizon for the PDA industry: the arrival of smartphones, and much larger competitors such as Nokia, Ericsson, and Samsung.By 2006, over 13 million smartphones had been shipped, and PDA sales had virtually ground to a halt.From PDAs to Smart Phones
118Discussion Questions:1.Why did most of the early PDA companies fail, even if they had innovative and sophisticated product designs?2.Could early PDA companies have done differently to survive?3.Why was Palm able to be successful where so many others had failed? 4.Was being late to the smart phone market a disadvantage for Apple? What factors enable Apple to successfully enter when it did?5.Are there increasing returns in the smart phone market? Is it likely to eventually pick a single operation system as the dominant design?From PDAs to Smart Phones
119OverviewIncreasing returns suggests that timing of entry can be very important.There are a number of advantages and disadvantages to being a first mover, early follower or late entrant. These categories are defined as follows:–First moversare the first entrants to sell in a new product or service category (“pioneers”)–Early followersare early to market but not first.–Late entrantsdo not enter the market until the product begins to penetrate the mass market or later.
120First-Mover Advantages and DisadvantagesBeing a first mover can confer the advantages of:–Brand loyalty and technological leadership–Preemption of scarce assets–Exploiting buyer switching costs–Reaping increasing returns advantages.