Sequential product positioning in the presence of an asymmetric network externality intensity

Abstract

In this study, we analyze the sequential decisions on product positioning of two firms in the presence of network externalities. One commonly accepted phenomena in a market where a network externality arises is the first-mover advantage, in which the first entrant into a market can earn a higher profit than later entrants. However, in some recent online services markets, we see that the second mover earns a higher profit than the first mover. This occurs because the second mover strengthens its variety of available functions and services markedly, thereby facilitating consumers' work and communication with its main product, which we call network externality intensity. Based on this observation, we analyze sequential positioning in Hotelling's framework by incorporating an asymmetric network externality intensity between firms. We show that unlike the results of previous related studies, both first-and second-mover advantages can appear in the equilibrium depending on the relationship of the network externality intensity between firms; further, they do not change monotonically with the level of network externality intensity.

Network externalities and endogenous timing in managerial firms

“…Other market is streaming music in Japan. “AWA targets music lovers by providing a recommendation system and a playlist, whereas LINE music targets young people by providing a link to their own SNS “Line” as well as a student discount (Saito & Matsubayashi, 2018, p. 320)”. Recently, the network externalities stem from social interactions with massively multiplayer online video games such as World of Warcraft, or for books and movies with fierce competition simultaneously.…”