Network Effect、Stickiness And Winner-takes-all

The rapid development of e-commerce and other kinds of network economy make a great impact on economic and social life in amazing depth and breadth, changing the way of social production and life style, changing the structure of industries and the business ecosystem. For consumers-commerce changes all aspects of life and become a new lifestyle. For enterprises, the emerge of e-commerce is like a revolution of traditional business model. The development of Information technology break the limit of original transaction in time and space and increase the operation efficiency of production and transaction.This also open a door for competition between e-commerce enterprises. Various kinds of war emerges, including price war, logistics war, financial war, intelligence war and so on. Whether these wars are grand banquets or stunts for collective marketing? What are the principles of economics behind those wars?As a media platform to exchange information between buyers and sellers, the e-commerce enterprise is a kind of bilateral network. This users of the network contact with other users through the platform, which will bring values to users. The bigger the scale of the network, the more suppliers who will provide relevant products and services. This is also the important reason for the existence of network effects in e-commerce industry.With the expansion of the scale of users in the platform, the network effects can cause First mover Advantage, Switching Cost, Market failure and One-sided tendency."Lock-in effect" and switching cost are the two sides of a coin. The more obvious the locking effect is, the higher the consumer switching costs. And that means the viscosity of users is higher. Because of the existence of switching costs, consumers are always reluctant to switch to other platform. In other words, the viscosity of users could weaken competition in the future. Therefore, the existence of network effects and viscosity of users in e-commerce industry is an important incentive factor.Based on this, in this paper, we viewed e-commerce war as a contest for user scale. The main purpose of enterprises to participate in the war is to enlarge its user scale and enhance the viscosity of its users until reach the Critical Value of network effects. This paper analyses the incentive mechanism of e-commerce war through a mathematical model of contest. This paper gives a science perspective to explain the reason why enterprises attend the e-commerce war. Through the contest model, this paper further elucidate the key factors leading to the fierce competition of this industry, including the high monopoly profit expectations, blind confidence caused by the network effects, low marginal cost etc. This paper also proposes the consequences of excessive competition and regulation measures to improve the effective competition between business enterprises.To be specific, this paper contains five parts:The first part introduce the development of e-commerce and the rise of e-commerce war. By reviewing the informed research, we determine the research angle and the method used in this paper and the innovation of this article. In the second part, the paper introduce the contest theory, through this part, readers can know about contest theory’s meaning. In the third part, the paper tells the main reason why enterprises attend various war frequently. This part mainly summarizes the development and application of network effect theory and analysis of network effects in Internet Conditions. The fourth chapter will build an analyzing model, formulating the whole procedure of financial innovation, which provide us the first-hand data and results. The last chapter will come to a conclusion and advice for the government regulation.