Network Externalities Market Entrants Competitive Strategies

From the angle of the new entrant to a market with network externalities, the dissertation analyzes the mechanisms of network externalities and competition of a network externalities industry. Based on the deep research, the dissertation concludes that there are powerful entry barriers in the market with network externalities. But if appropriate competition strategies are adopted, the new entrant to a network externalities market can breakdown the entry barriers and win the competition with the market incumbents.Network externalities is such a phenomenon that the utility that one consumer derives from consumption of the goods increases with the number of other agents consuming the same network goods. An industry with network externalities shows special characteristics, which are different from the traditional industry and make the competition mechanism in this kind of market present some new phenomena, rules and traits. The market structure in competition equilibrium often shows characteristics of monopoly or oligopoly. And the equilibrium is path-depended and easy to be locked-in, which makes it excessively difficult for firms to enter the market with new products produced by new technology, even if the new technology is clearly superior to existing one. In a word, there are more powerful entry barriers to the new entrant to the market with network externalities, compared with the traditional market.But all of the following factors make the entry of the new entrant possible: Firstly, the path-dependence of the market competition equilibrium is changeable; Secondly, the consumption decision of the consumer is inducible; Finally, the new entrant owns some comparative competitive advantages. Through the adoption of appropriate strategies, the new entrant can influence the evolution path of the competition equilibrium to the benefit of itself. The positive feedback mechanism of the network externalities can prompt the evolution process. It is possible for the new entrant to overcome the entry barriers.The competition in the market with network externalities is composed of two successive stages: the stage of the choice of technical standardand the stage of competition in the product market. The strategies of one competitor encompass compatibility strategy, pricing strategy, the timing of introducing new product, reducing switching costs strategy and differentiation strategy. The dissertation analyzes the best choice of every strategy, and proves that the new entrant can not only enter in the market with network externalities but also surpass the incumbent by selecting proper competition strategies, With the change of the competition stage and the comparative state of the entrant to the incumbent, the new entrant should perform different competition strategy.Based on the sources of network externalities, the network externalities can be classified into two different types: the direct network externalities and the indirect network externalities. In the market with indirect network externalities, there are some special strategies for the competitors, including foreclosure strategy and the pricing strategy in the two-sided markets. And the internal mechanism of the indirect network externalities is the sources of these strategies. The dissertation analyzes the best choice of every strategy in the market with indirect network externalities, and draws the same conclusion as the case of direct network externalities, that is, by selecting appropriate strategies, the new entrant can win the competition with the market incumbent.Based on the theoretical research, the dissertation makes a case study on the global mobile communication market and verifies the conclusions that are drawn from the above theoretical research.