Network Economics

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Network economics: the hardware/software paradigm, winner -takes-all- markets and technological standard wars. We observe after a bit of competition, at a certain point a firm take the lead (eBay in this case) in a market that gained lots of importance, the other instead lose pace. Still today eBay is the leader of the market, even if the market decreased in terms of importance. This is very typical in the network market, e.g., ICT. This evolution in terms of competitive dynamics into the market cannot only be ascribed to the fact that eBay was better performing its business than the other. It’s very typical of network market, due to its inner characteristics. Structural characteristics of the market that force the firms to put in action some action, strategies that lead to certain performances and in terms of performance of the whole market. This type of dynamics is observable also in the above 2 examples. Smartphone OS →incredible gap compared to the other market. The car industry in which in terms of size are more comparable to the gap. * example explained below In terms of the dichotomy of performance comparing the market leader and others. Winner takes all market → firm able to become leader takes all the market, most of it. it leaves only pinouts to all the others. No second-best prize medal because firms compete only for the first position, the gold medal. An introductive example: The story of the garbage bin GARBAGE BIN •In the town there are six guys that like playing videogames, Alan, Bud, Charlie, David, Eliah, and Frank. •Their utility function is characterized by externalities: their preferences depend on the intrinsic value of the game console plus a bonus that depends on the number of other guys owning the same type of console (why? because they can…