Marketing

Network effect

Microeconomics

Standardization

Computer security

Operating system

Economics

Computer science

Business

Externality

Emerging technologies

Artificial intelligence

Industrial organization

Key (lock)

Journal of Political Economy

We analyze technology adoption in industries where network externalities are significant. The pattern of adoption depends on whether technologies are sponsored. A sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it. Key findings include the following: (1) compatibility tends to be undersupplied by the market, but excessive standardization can occur; (2) in the absence of sponsors, the technology superior today has a strategic advantage and is likely to dominate the market; (3) when one of two rival technologies is sponsored, that technology has a strategic advantage and may be adopted even if it is inferior; (4) when two competing technologies both are sponsored, the technology that will be superior tomorrow has a strategic advantage.

Technology Adoption in the Presence of Network Externalities