Bandwagon Effects in High-technology Industries

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MIT Press, 2003 - Business & Economics - 256 pages
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Economists use the term "bandwagon effect" to describe the benefit a consumer enjoys as a result of others' using the same product or service. The history of videocassettes offers a striking example of the power of bandwagon effects. Originally there were two technical standards for videocassettes in the United States: Beta and VHS. Beta was widely regarded to have better picture quality, but VHS could record longer television programs. Eventually the selection of Beta cassettes shrank to zero, leaving consumers no choice but to get on the VHS bandwagon. The most successful bandwagon, apart from telephone service, is the Internet.In this book Jeffrey Rohlfs shows how the dynamics of bandwagons differ from those of conventional products and services. They are difficult to get started and often fail before getting under way. A classic example of a marketing failure is the Picturephone, introduced by the Bell System in the early 1970s. Rohlfs describes the fierce battles waged by competitors when new services are introduced, as well as cases of early agreement on a single technical standard, as with CDs and CD players. He also discusses the debate among economists and policy analysts over the advantages and disadvantages of having governments set technical standards. The case studies include fax machines, telephones, CD players, VCRs, personal computers, television, and the Internet.

  

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Contents

Introduction
1
The HighTechnology Bandwagon
3
A Bandwagon Tour
7
21 A Guide to the Tour
8
Bandwagons How They Work
13
Bandwagon Demand
19
31 Equilibrium User Sets
20
32 Demand as a Function of Price
24
107 Videodisc Players
113
108 Lessons from Case Study
115
Personal Computers
117
111 Early Application Software
119
113 The Decline of the IBM PC
121
114 The Role of Apple
124
115 The Rise of Intel and Microsoft
127
116 Microsofts Pricing
129

33 Metcalfes Law
29
34 Dynamics of Complementary Bandwagon Effects
30
Bandwagon Supply
33
42 Interlinking
34
43 Solving the StartUp Problem
35
44 Incentives of Suppliers to Interlink
45
45 Supply Coordination with Complementary Bandwagon Products
47
46 Technical Standards
48
47 Proprietor Services versus Customer Equipment
50
48 Mature Services
51
49 Predatory Pricing
53
Summary of Results of Bandwagon Theory
55
Case Studies
59
Fax
61
61 Lessons from Case Study
67
Early Telephone
69
72 Interlinking
79
73 Lessons from Case Study
80
Picturephone
83
81 Picturephone as an Intercom Service
87
82 Constructing a SelfSufficient User Set
88
83 Actual Outcome
89
CompactDisc Players
91
91 Technological Standard
92
92 CDs Not Available
95
93 Small Libraries of CDs
96
94 Subsequent Developments
98
95 Other Digital Players of Recorded Music
99
96 Lessons from Case Study
104
VCRs
105
102 Early VCR Use
106
103 Beta versus VMS
107
104 The Bandwagon
109
105 The Hollywood Assault
111
106 The Videocassette Business
112
117 Recent Applications Software
131
118 Linux
132
119 Java
133
1110 The Role of Misjudgments
134
1111 Lessons from Case Study
135
Television
137
122 Color Television
143
123 HighDefinition Television
148
124 Lessons from Case Study
164
The Internet
167
131 Size and Growth of the Internet
168
132 Telecommunications Technology
172
133 Evolution of the Computer Industry
176
134 Telecommunications Prices
177
135 The Development of ARPANET
179
136 Other PacketSwitched Networks
181
137 NSFNET
188
138 The Internet after NSFNET
189
1310 Current Internet Usage
190
1311 A Final Reflection
191
Conclusions
193
Summary of Results
195
141 StartUp Problem
197
143 Bandwagon Markets without Interlinking
198
144 Agreeing to a Technical Standard
199
145 Government Intervention
201
Final Remarks
203
Mathematical Appendix
205
Notes
223
Glossary of Economics Concepts
235
Dictionary of Abbreviations and Acronyms
239
Bibliography
241
Index
247
Copyright

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About the author (2003)

Jeffrey Spike, Ph.D., is Associate Professor of Medical Humanities at the University of Rochester School of Medicine. He has been the Course Director of the Medical Humanities Seminars for ten years,and he serves as Co-Director of the Ethics and Law theme in themedical school curriculum. He founded the Ethics Consultation Serviceat Strong Memorial Hospital, and he has published over 20 articles in bioethics journals.

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