Make Way for the Penguin? Explaining Commitment to Linux by Independent Software Companies

Purpose - This paper aims to analyze competition between two platforms with asymmetric cross indirect network effects under hidden buyer sensitivity. Platforms are differentiated by indirect network effects toward buyers that are also differentiated privately with sensitivity to the effects. Design/Methodology/Approach - We set up a platform competition model based on a signaling game and thus characterized a perfect Bayesian Nash equilibrium. A nature selects two types of buyer with a certain probability. Each type of buyer chooses one platform (single-homing). Sellers can choose either single-homing or multi-homing with price setting and complete trade with buyers. Findings - First, the leading platform with stronger cross network effects does not always mandate exclusive homing for sellers. Second, in a two-sided market where the small platform is significantly weak, a leading platform does not mind seller multihoming if buyers sensitive to indirect network effects are numerous enough. However, price discrimination under seller multihoming lowers social welfare. Third, when platforms are close enough in indirect network effects, a leading platform always wants to impose mandatory exclusive homing on sellers. A seller can raise prices and narrow trades to buyers with high willingness-to-pay only responding to mandatory exclusive homing, which lowers social welfare. Research Implications - Asymmetry between platforms in indirect network effects and buyer hidden sensitivities to the effects must be scrutinized to design effective policy instruments to promote competition in the platform market.

The market for plug-in electric vehicles (EVs) exhibits indirect network effects due to the interdependence between EV adoption and charging station investment. Through a stylized model, we demonstrate that indirect network effects on both sides of the market lead to feedback loops that could alter the diffusion process of the new technology. Based on quarterly EV sales and charging station deployment in 353 metro areas from 2011 to 2013, our empirical analysis finds indirect network effects on both sides of the market, with those on the EV demand side being stronger. The federal income tax credit of up to $7,500 for EV buyers contributed to about 40% of EV sales during 2011–13, with feedback loops explaining 40% of that increase. A policy of equal-sized spending but subsidizing charging station deployment could have been more than twice as effective in promoting EV adoption.

Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market

Software exclusivity and the scope of indirect network effects in the U.S. home video game market

Platforms, or two-sided markets, have become a topic of significant discussion in competition law over the past decade, culminating in the recent US Supreme Court decision in Ohio v. American Express Co. This note discusses externalities in platforms. Indirect network effects, one type of externality common on platforms, have been prominent in these discussions. However, the prominence of indirect network effects has obscured the importance of another externality that exists on platforms, a usage externality. This note argues that a near exclusive focus on indirect network effects has led to errors in identifying when a market should be analyzed as a platform. These errors implicate the identification of platforms like those at issue in Ohio v. American Express Co. as well as a wider set of platforms, such as ad-supported media platforms.

Can indirect network effects lead to adoption externalities? If so, when? We show that in markets where consumption benefits arise from hardware/software systems, adoption externalities will occur when there are (i) increasing returns to scale in the production of software, (ii) free entry in software, and (iii) consumers have a preference for software variety. The private benefit of the marginal hardware purchaser is less than the social benefit since the marginal hardware purchaser does not internalize the welfare improving response of the software industry, particularly the increase in software variety, on inframarginal purchasers when the market for hardware expands.

We consider a dominant platform provider operating both legacy and new platforms that connects users with suppliers in a two-sided market context. In addition to the typical indirect network effects in the two-sided market, backward compatibility works on the new platform. Thus, users joining the new one can also enjoy the services provided by suppliers using the legacy platform. Users and suppliers are linearly differentiated between two platforms as in the Hotelling model and play a subscription game of choosing one platform at the lower level. The suppliers in the new platform may suffer from congestion, which can be alleviated by platform provider’s investment on the new one. The platform provider also determines price margins for the supplier sides. Our equilibrium (eq.) analysis in the subscription game identifies an interior eq. (coexistence of both platforms in both sides). Though the backward compatibility plays a stabilizing role for the interior eq., its stability is fragile due to the network effects. Rather, some boundary eq.’s, where at least one side tips to the legacy or the new platform, are more likely to be stable. The backward compatibility is a key factor that characterizes the stable boundary eq.’s. The upper stage game is led by the platform provider, which tries to maneuver the system toward one of the stable boundary eq.’s using price margins and investment. The platform provider prefers an all-new boundary eq. when the indirect network effect and the maximum price margin for the new platform are large; thus, it puts a significant investment in the new one. With a small indirect network effect for suppliers, however, the platform provider does not invest in the new platform and choose a separate boundary eq. where two sides split into different platforms. Whether the user side completely tips to the new one (completely separated eq.) or not (partially separated eq.) depends on the backward compatibility. The relative advantage of the all-new eq. over the separate eq.’s in terms of social welfare from both sides depends on the backward compatibility as well as the indirect network effects for the new platform.

Solving the startup problem in Western mobile Internet markets

Review for "Trophic rewilding benefits a tropical community through direct and indirect network effects"

The Double-Edged Sword of Backward Compatibility: The Adoption of Multi-Generational Platforms in the Presence of Intergenerational Services

Going beyond the traditional conceptualization of indirect network effects as the number of complements available, this study analyzes how the network positions of platforms and complementors explain platform dominance. We use data from the U.S. home video game industry between 2002 and 2006 to test our model of platform dominance. While the impact of degree of links with complementors representing the number of complements is significant, our study also finds that platform dominance is positively influenced by support from a greater breadth of titles by complementors and lesser degree of overlap with other platforms. We also find that ties with high-status complementors influence platform dominance, but this impact decreases with platform age. Our results suggest benefits to refine our conceptualization of indirect network effects from a network perspective. The managerial implications are that each platform provider needs to differentiate its platform by attracting high-status developers and by providing third-party developers with toolkits that encourage them to develop exclusive titles.

Monetary Policy Through Production Networks: Evidence from the Stock Market

Tech giants such as Google and Facebook generate significant amounts of advertising income, which is mainly reported in low-tax countries. This has started a policy discussion about how to re-align the locations of value creation and taxation. The success of the business model of these digital platforms relies on the existence of indirect network effects, which are the prime reason why these platforms exist and generate advertising income. To account for these effects, conventional tax policy needs to be adjusted. This includes an adjusted concept of nexus, which should rely on the location of users because they generate the relevant indirect network effects. The recent European Union (EU) proposal of a digital service tax goes in this direction and constitutes a policy option for the Netherlands.

Purpose – The study aims to show the successful application of Six Sigma in software companies for process improvement. Research design, data and methodology – A mixed methodology has been used which include both qualitative and quantitative research. In the qualitative research methodology part, a detailed and comprehensive literature study have been carried out. The literature study consists of articles, books, web materials, discussion forms and others. In the quantitative research methodology part, interviews have been conducted. Results – Six sigma is the practical application of a theoretical statistical measurement that equates to 3.4 defects per million opportunities -a position of practically zero defects for any process or service. Initially originating in Motorola Inc. in 1985 as a response to drastic quality improvement pressures from the threat of Japanese competition, it quickly gained many followers particularly G.E., Allied Signal, Ford Motor Company etc. and more recently attentions have shifted to service environments. There are still some problems and misconceptions existed about the applicability of Six Sigma in software companies. Conclusions – The paper concludes that Six Sigma can bring large benefits for software companies too. Furthermore, software companies have already started to implement Six Sigma approach, like Ericsson, Tata Consultancy Service, etc.

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