Third-party Provision of Conversion Technologies in Network Markets

Authors

  • Arnaud Varé EPFL
  • Ralf Seifert EPFL, IMD

DOI:

https://doi.org/10.4067/S0718-27242009000200001

Keywords:

converter, de facto standardization process, network externality, standards war, tactics, technology adoption, third party.

Abstract

In network markets, the provision of third-party converters is an important dimension of standards wars. In this paper, we develop a mathematical model to analyze the effects of third-party converter introduction on the adoption process of incumbents’ base technologies and discuss managerial insights based on our model. We determine converter introduction strategies of third parties by establishing under what circumstances third parties may maximize their profit. We find that there exists an optimal introduction time for converters, which depends on a trade-off between conversion option and consumers’ memory effect. The preferred conversion option is mostly two-way conversion. As a result of converter provision, converter introduction affects the de facto standardization process of the incumbents’ base technologies by accelerating the lock-in process of the dominant technology. We then discuss how incumbents can anticipate and react to third-party converter introduction in order to reduce the third parties’ incentive to introduce converters. Throughout the paper, we illustrate our analytical results with numerical examples.

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Author Biographies

Arnaud Varé, EPFL

EPFL

Ralf Seifert, EPFL, IMD

EPFL, IMD

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Published

2009-07-21

How to Cite

Varé, A., & Seifert, R. (2009). Third-party Provision of Conversion Technologies in Network Markets. Journal of Technology Management & Innovation, 4(2), 1–20. https://doi.org/10.4067/S0718-27242009000200001

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Section

Research Articles