Winners, Losers and Microsoft. Competition and Antitrust in High Technology - Stan J. Liebowitz & Stephen E. Margolis

Abstract

Understanding the role of network externalities in product, firm and market settings is at the top of many modern economists’ research agenda. With network externalities “the utility that a user derives from consumption of [a] good increases with the number of other agents consuming the good” (Katz and Shapiro, 1985). The downside of network externalities is that the smallest of historical accidents, perhaps a careless choice by a technology pioneer responding to some random influence, has the potential to lock in future generations to an inefficient technology. The result is a market failure. Thus, there exists the possibility that all people might use the same telephone service, or all companies might use the same ERP software for human resource or the same XML technology for e-commerce, though these technologies may not be the best-of-breed.