Should Buyers Try to Shape IT-Markets Through Non-Market (Collective) Action? - Antecedents of a Transaction Cost Theory of Network Effects

This paper develops a transaction cost theoretic model of network effects and applies it to assessing the chances of user groups to influence the range of technological choices available on the market. The theoretical basis of the model is formulated by a number of empirically refutable propositions which overcome some conceptual and empirical difficulties encountered by the traditional interpretation of network effects as (positive) network externalities. The main difference between our model and modelling network effects as network externalities is that network effects are seen as caused by the costs of purchasing/marketing new technology, i.e. transaction costs, rather than by the benefits of using new technology. A preliminary application of the model suggests that a user group’s ability to function as a conduit for information exchange and knowledge sharing can significantly improve the chances of replacing an established technology by a new, potentially superior one. This, however, would call for a rather different type of user group than exists today.