How High-Technology Start-Up Firms May Overcome Direct and Indirect Network Externalities

Abstract

This paper presents a conceptual model of strategic choice for high-technology start-up firms in the face of network externalities—the strength of the market’s preference for standardized technology. Our model suggests that the commercialization strategies followed by such a firm will depend on the type of network externalitites—direct versus indirect—as well as the degree of appropriability—the firm’s ability to retain the value of innovation. We offer a number of propositions generated by the model and discuss their implications.