Network Topology and Standards War: When Does a New Technology Survive in the Network Economy?

We develop a computational model to address the question of when a new, incompatible technology can survive in competition with an incumbent technology in the presence of network effects. We experimented mainly with network topology and the timing of new-technology introduction. Like much of prior work, our study does show that the survival of the new technology depends on the timing or the installed base. But our findings suggest that network topology may be more important and essential. Our study shows that delayed entries do not exclude the possibility of the new technology's sustainability when the customers' social networks are characterized by a high degree of clustering with no or few shortcuts (e.g., co-worker networks for instant messaging). In this network topology, we also find that it is worthwhile for an entrant to attempt to win the market with a new incompatible technology by offering stand-alone customer benefits such as price discount or higher quality. On the other hand, when shortcuts are substantial, the market dynamics show tipping, and the entrant's strategy would quickly become ineffective beyond some delay in entry. That is, an entrant would be better off by offering its product compatible with the existing one.