Network Externalities and Information Strategies of Corporations

Abstract

There are some markets where the utility which a user derives from consumption of a product increases with the number of other users utilizing it among the markets of various products, for a user often places higher value on a product if others also use it. When this occurs, the market is said to display network externalities.

The purpose of this paper is to elucidate the nature of the market of this type and clear up the points to attain the competitive advantage there. In such a market corporations perform very interesting information strategies. Though the problem of network externalities has lately attracted considerable attention, there is no systematic study or well-organized treatise on these information strategies. This paper clarifies the information strategies in such a market.

To be concrete, corporations preannounce there that they will put a new product on sale and it will be compatible with the product now in use. They sometimes make public that they will build a new factory to manufacture the new product. They also emphasize that their product on sale is gaining the largest share in the market in order to activate bandwagon effect.