The Compound Impact of Network Effects, Critical Mass, and Standartization on Competition in the Operating System Market

Abstract

The competition policy mechanisms in specific sectors of the economy work out, provided that balanced protection tools are used, and incentives are maintained to launch a new product or technology onto the market. However, strong network effects lead to the presence of a small number of manufacturers or even a single player, which hinders the spread of alternative products and contributes to a single product network formation. The relevance of this research is driven by the need to competition analysis in the software market affected by the network effects. The purpose of this review article is to justify the need for a compound impact analysis of network effects, critical mass and standardization as an assessment optimization tool of the competition state in the two- sided software market, specifically in the operating systems markets. The object of the research is an operating system itself, and the subject is the influence of network effects, critical mass and standardization on competitive processes in the operating systems market. The following issues were performed: the results systematization of theoretical studies and approaches to econometric modeling of network externalities, the strategies identification for analysis of standards and installed base of users and sales, introduction of the operating system and software concepts, the development of recommendations for analysis of the phenomenon of network effects with an emphasis on the standardization process in the furtherance of competition and industrial policy. Analysis of the examined phenomena impact shows that the introduction of a generally accepted network effects definition at the legislative level, distinction between the direct and indirect network effects, consideration of this phenomenon as a barrier to entry into the market, and concord of the network effects and standard setting theory can decrease the possibility of type I and II errors in the law enforcement practice.