Network Effect, Entrant Of New Product And Policy Analysis

As a popular economic phenomena in the age of information economy, network effect has attracted more and more attention from economists. It is generally believed that the existence of network effect will give the incumbent "first-mover advantage" on installed base. One of the questions that economists focused on is to what extent the first-mover advantage will increase the difficulty of the entrance of new products or techonologies. In this paper, I developed an ACE(Agent-based Computation Economics) model and addressed the question of how much market share a new, incompatible product can take in competition with an incumbent production in the presence of network effects. What makes my research different from existing research is that I presented the concept of friend-valued effect and investigated that how the friend-valued effect and the network strcture affect the final market structure. What's more, I analysed the effects of various market-entrance support policies of the government. In the industry where exists strong network effect, trade and industry policies which are used to support the domestic entrant have been widely applied. It is important for us to analyse the effects of various market-entrance support policies in different backgrounds when choosing the market-entrance support policies.The paper is organized as follows. Section 1 explains the main aim of this research and the topic of my paper. Section 2 introduces some concepts related to network effect and some research concerning the new product entrance in the presence of network effect. Section 3 illustrates the friend-valued effect. Section 4 introduces the research about network structure and agent-based computational economics. Section 5 presents an agent-based computational economics model. Section 6 uses this model to investigate how the friend-valued effect and the network strcture affect the final market structure. Section 7 extends the model to analyse the effects of various market-entrance support policies in different backgrounds. Section gives and analyses two examples of successful entrance of new product. Section 9 concludes and points out the direction of farther research.