Brinkmanship et externalités de réseau

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					Brinkmanship and
Network Externalities
Germain Belzile
53-863-02
Winter 2009
The Rules

  Unless it’s impossible, trying to change
   the rules is often a good idea
  Changing the rules = strategic move
How to Organize
Cooperation?
 Punish defection or reward compliance
 Be:
     Clear
     Nice
     Provocable
     Forgiving
 Punishments
 Problem if small punishments and
  large rewards for cheaters
 Same thing if punishment is very
  large (credibility…)
   The punishment should be as
    automatic as possible …
Loosing Control
  Possibility of loosing control will make
   opponents be cautious:
     Game of chicken
  Important: the opponent must have a doubt
  Essential: uncertainty as to when the
   punishment will « strike »
  Examples:
       MAD
       Cuba
       Paul Martin
       Yes, Prime Minister
Network Effects: A Few
Questions
  Why are we sometimes using an inferior
   technology?

  How do we decide whether to use a new
   technology?

  Cooperation or competition?
A Few Examples...

  QWERTY: norms and the advantages of
   conformity...

  DVD’s and CD’s : one format
  Laser discs
  VHS vs Beta: 2 standards, 1 winner
A Few Examples...

  Video gaming: Wii, X-Box and Play-
   Station

  Windows, Linux and MacOS
Network Externalities
  The value to a user depends on the number
   of users
  Metcalfe’s Law: the value of a network
   increases with the square of the number of
   users
  Expectations play an important role: the
   expected winner …
Games and Network
Effects

    Multiple equilibria
    Network effects and lock-in
    Switching costs and path dependency
    Positive feedback
    Cooperation and competition
Network Externalities

  Switching costs reenforce network inertia
   (QWERTY) but increase risks for clients
Positive Feedback

  Past a certain point, the strong become
   stronger and the weak, weaker...
Network Externalities

  Domination by one or a few players (Intel
   and Microsoft versus Apple; VHS versus
   Beta; …): « winner take all »
  Sometimes, wars of attrition
Network Externalities


  Exist on the supply and on the demand
   side
Standardization

   High development costs
   Low marginal costs
The Best Strategy?
  First mover’s advantage?
Strategies on the Demand
Side
    Negociate from a strong position
    Reduce switching costs
    Second sourcing, parallel sourcing
    Look for open systems
Strategies on the Supply
Side
  Install capacity
  Prove your commitment
  Subsidize consumers at the beginning of the
   cycle
  Encourage loyalty
  Sell complements or make alliance with
   complement producers

				
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posted:5/7/2011
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