Jeffrey H. Rohlfs's Bandwagon Effects in High Technology Industries PDF

By Jeffrey H. Rohlfs

ISBN-10: 0262182173

ISBN-13: 9780262182171

Economists use the time period "bandwagon impression" to explain the convenience a shopper enjoys due to others’ utilizing a similar services or products. The background of videocassettes deals a notable instance of the facility of bandwagon results. initially there have been technical criteria for videocassettes within the usa: Beta and VHS. Beta used to be extensively looked to have greater photograph caliber, yet VHS may possibly list longer tv courses. ultimately the choice of Beta cassettes shrank to 0, leaving shoppers no selection yet to get at the VHS bandwagon. the main winning bandwagon, except mobile carrier, is the web. during this e-book Jeffrey Rohlfs indicates how the dynamics of bandwagons range from these of traditional services and products. they're tricky to start and sometimes fail ahead of getting less than manner. A vintage instance of a advertising and marketing failure is the Picturephone, brought by way of the Bell approach within the early Nineteen Seventies. Rohlfs describes the fierce battles waged through rivals whilst new companies are brought, in addition to instances of early contract on a unmarried technical commonplace, as with CDs and CD avid gamers. He additionally discusses the controversy between economists and coverage analysts over the benefits and downsides of getting governments set technical criteria. The case stories contain fax machines, phones, CD gamers, VCRs, own desktops, tv, and the net.

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To decide public policies regarding interlinking, one must weigh the large benefits of interlinking against these possibly substantial costs. In general, interlinking makes the start-up problem much easier to solve. With interlinking, consumers enjoy bandwagon benefits with respect to the entire customer base—not just the customers of a single supplier. Thus, initial demand is likely to be substantially greater, and it is easier to reach a critical mass. On the other hand, interlinking also reduces the incentives of suppliers to solve the start-up problem.

He or she hopes thereby to be able to attract other suppliers’ customers who wish to enjoy the greater bandwagon benefits. This leads to an unstable process in which success breeds further success. Ultimately, one supplier may have a virtual monopoly. This instability is analogous to that deriving from internal supply-side scale economies in standard economic models. Under standard assumptions, competition among firms with internal scale economies is unstable, leading ultimately to a single survivor that has a monopoly with lower unit costs than any competitor or potential competitor.

Indeed, the total value of a bandwagon service may go up less than proportionately to the number of users—let alone the square of the number of users. Such an outcome could occur, for example, if a service in equilibrium has a low price, but some enthusiastic users value it very highly. Because the price is low, we know that the value of the service to marginal users must also be low. That value, in turn, may be low because marginal users do not use the service very much. Under these circumstances, it is likely that existing users would derive only small bandwagon benefits as marginal subscribers join.

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Bandwagon Effects in High Technology Industries by Jeffrey H. Rohlfs


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