Bandwagon Effects in High-technology IndustriesEconomists 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. |
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 |
| 241 | |
| 247 | |