Study Memo

Study Memo: Battles and Design Dominance

For the textbook chapter:

1.What are some of the sources of increasing returns to adoption?

One primary source of increasing returns is learning-curve effects. The more a technology id produced and used, the better understood and developed it becomes, leading to improved performance and reduced costs.

Another key factor creating increasing returns is network externality effects. Network externality effects arise when the value of a good to a user increases with the size of the installed base. This can be due to a number of reasons, such as need for compatibility or the availability of complementary goods.

2.What are some of the ways a firm can try to increase the overall value of its technology, and its likelihood of becoming the dominant design?

First, the firm can increase the technologies’ stand-alone value to the customer, such as superior functionality at a competitive cost.

Second, the firm can also increase the technologies’ network externalities value by encouraging developers for complementary products for their technologies.

Third, advertising heavily to create the size of installed base is another way to increase the overall value of its technology. Advertise that a new product with superior capabilities will be launched soon and persuade them not buy a product already available and wait for their new products.

3.Are dominant designs good for consumers? Competitors? Complementers? Suppliers?

I think the answer of this question depends on how we look at the problem. The answer is “YES” if the benefits accrued by consumers through widespread adoption of a technology outweighs the costs associated with a monopoly (e.g. higher prices, less product, variety, etc.). The answer is “NO” if the benefits accrued do not outweigh the costs.

For the competitors, the answer is “YES” if the firm is the winner of the dominant design war. The firm that owns the technology that becomes the dominant design benefits...