Competition Srategies Of Firms Based On Network Externality

Based on the network externality characteristic of ICT industry, finance industry and aviation industry, this paper focuses on the changing environments of competition in these industries and their influences on the competitive behaviors of firms.As the introduction, part one provides the background of this research and the general outline. When network externality is at work, competition factors inside the market changes as follows: Firstly, consumer expectations play an important role in the success of the products. Secondly, the lock-in effect may take place only in a limited space as a result of switch cost. Thirdly, merger or technology alliance of some firms is the possible way to increase the installed base. And the last is that competitions for standards are ubiquitous in ICT industry.Part two describes the network externality as the utility a user derives from consumption increases with the number other users consuming the same products or its complementary products. The effects are the function of network size and the strength of network externality. This part also points out that the utility increase comes directly from installed base and is influenced by some factors such as consumer expectations, switch cost and the compatibility of products, etc.Part three presents that firms can take advantage of the property of increasing return in network externality. As to business strategies, penetration pricing or innovation introducing can be used to gain more expectation from users. Switch costs are also used in competition.