Does Quality Win Network Effects versus Quality in High-Tech Markets
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Does Quality Win Network Effects versus Quality in High-Tech Markets
Does Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsarketing ResearchGerard J. Tellis is the Jerry and Nancy Neely Chair in American Enterprise, Professor of Marketing, and Director of the Center for Global Innovation, at the Marshall School of Business, University of Southern California. Address: P.O. Box 90089-1421, Los Angeles, California, USA; te Does Quality Win Network Effects versus Quality in High-Tech Marketsl: +1.213.740.5023, fax: + 1.213.740.7828, E-mail: telllsffiusc.edu. Rakesh Niraj is an Assistant Professor of Marketing at the Marshall School of BusDoes Quality Win Network Effects versus Quality in High-Tech Markets
iness, University of Southern California, Los Angeles, California, USA; tel: + 1.213.740.9844, fax: +1.213.740.7828, E-mail: rknirajffimarshall.usc.edDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsool, Cambridge University, Cambridge, CB2, LAG, U.K; tel: +44.1223.339617, fax: -44.1223.339701, E-mail: e,yinffijbs.cam.ac.uk.*The authors gratefully acknowledge the financial support of Don Murray to the Center for Global Innovation and the comments of Peter Golder, Yongchuan Bao, Stefan Stremersc Does Quality Win Network Effects versus Quality in High-Tech Marketsh, Rajesh Chandy, Joseph Johnson, and participants at seminars in the marketing departments of the University of Florida, Ohio State University, CambrDoes Quality Win Network Effects versus Quality in High-Tech Markets
idge University and Erasmus University Rotterdam.11Does Quality Win?Network Effects Versus Quality In High-Tech MarketsABSTRACTResearchers disagree abDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsient with best quality brands dominating. On the other hand, many authors suspect that network effects lead to perverse markets in which the dominant brands do not have the best quality. We develop scenarios about the relative importance of these effects and the efficiency of markets. Empirical anal Does Quality Win Network Effects versus Quality in High-Tech Marketsysis of historical data on 19 categories shows that while both quality and network effects affect market share flows, markets are generally efficient.Does Quality Win Network Effects versus Quality in High-Tech Markets
In particular, market share leadership changes often, switches in share leadership closely follow switches in quality leadership, and the best qualitDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Markets Dependence, Quality, High-Tech ProductsApril 3ri. 20082INTRODUCTIONMicrosoft Windows. Microsoft Word. Oracle relational databases. These high-tech innovations have survived numerous challenges and dominate their res|>ective categories. Their market domination grants them enormous advantages while d Does Quality Win Network Effects versus Quality in High-Tech Marketsrawing intense scrutiny as potentially illegal monopolists. Researchers and analysts have debated whether domination is the well-deserved reward ol suDoes Quality Win Network Effects versus Quality in High-Tech Markets
perior quality or the illegal rents from monopoly power. Many authors have questioned whether the market is efficient under such domination.On the oneDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Markets Katz and Shapiro 1985, 1986, 1992, 1994). Network effects refer to the increase in a consumer’s utility from a product when the number of other users of that product incteases. Many economists fear that such effects may lead to consumer inertia, lock-in, or path dependence that favors established i Does Quality Win Network Effects versus Quality in High-Tech Marketsnferior products to newer superior ones. For example, Besen and Farrell (1994. p. 118) state, “The coexistence of incompatible products may be unstablDoes Quality Win Network Effects versus Quality in High-Tech Markets
e, with a single winning standard dominating the market. In these circumstances, victory needs not go to the better or cheaper product: an inferior prDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Markets-in to obsolete standards or technologies” even though superior quality alternatives may become available. Krugman (1994, p. 223) doubts that “markets invariably lead the economy to a unique best solution;” Instead he asserts that "the outcome of market competition often depends crucially on histori Does Quality Win Network Effects versus Quality in High-Tech Marketscal accidents.” Arthur (1989. p.116) concludes, “A technology that by chance gains an early lead in adoption may eventually corner the market of potenDoes Quality Win Network Effects versus Quality in High-Tech Markets
tial adopters, with the other technologies becoming locked out” even though the latter are superior.On the other hand, several studies emphasize the iDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsri!significant positive influence on market share (Jacobson and Aaker 1985,1987; Kordupleski, Rust and Zahorik 1993; Phillips, Chang, and Buzzell 1983), return-on-investment (Buzzell, Gale and Sultan 1975; Phillips, Chang and Buzzell 1983), premium prices charged (Moorthy 1984, 1988; Phillips, Chang Does Quality Win Network Effects versus Quality in High-Tech Markets and Buzzell 1983; Tellis and Wernerfelt 1987; Zhao 2000), advertising (Tellis and Fomell 1988; Zhao 2000), perception of quality (Hellofs and JacobsoDoes Quality Win Network Effects versus Quality in High-Tech Markets
n 1999), and stock market return (Aaker and Jacobson 1994; Tellis and Johnson 2007). In particular, Liebowitz and Margolis (1995,1996, 1999) cite seveDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsfects do not protect market participants from competition” (1999, P-14). Their result not only contradicts the conclusions of many economists, but seems counter to the behavior of many users of products such as word processors, email, and voice-over-internet programs, who choose such products based Does Quality Win Network Effects versus Quality in High-Tech Marketsprimarily on what their colleagues are doing rather than on an independent assessment of quality.Thus the literature is divided about the role of qualDoes Quality Win Network Effects versus Quality in High-Tech Markets
ity and network effects in the success of high-tech products and whether such markets are efficient. We define an efficient market as one in which theDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Markets4), Kamakura, Ratchford, and Agrawal (1988), and Tellis and Fornell (1988)?Empirical studies in marketing have not yet tackled this issue sufficiently. These studies either focus on proving the presence of network effects (Nair, Chintagunta and Dube 2004), on investigating the nature of network effe Does Quality Win Network Effects versus Quality in High-Tech Marketscts (Shankar and Bayus 2003), or on analyzing the role of network effects in diffusion (Gupta, Jain and Sawhney 1999). However, none of them have1 ThiDoes Quality Win Network Effects versus Quality in High-Tech Markets
s definition would correspond to the standard definition of efficiency in economics, e.g., maximizing the sum of consumer and producer surplus under tDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsn that leaves them with higher surplus. Second, the higher quality product commands an equal or higher margin, either because consumers are willing to pay more or firms can produce it with superior technology at lower cost.44specifically examined the drivers of success of new high-tech products. In Does Quality Win Network Effects versus Quality in High-Tech Marketsparticular, no study has explicitly examined the relative importance of quality vis-à-vis network effects in a unified framework, tested on the same cDoes Quality Win Network Effects versus Quality in High-Tech Markets
ategories, while drawing implications about market efficiency in these markets. This issue is important for several reasons. First, new high-tech prodDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsets are driven by quality or network effects have important implications for managerial strategies. Third, whether, as argued by many economists, network effects are as strong as to dominate and negate the role of quality leading to market inefficiency has profound policy implications.Does the prese Does Quality Win Network Effects versus Quality in High-Tech Marketsnce of network effects really swamp consumers’ responsiveness to quality as many expert economists claim? How do quality and network effects interactDoes Quality Win Network Effects versus Quality in High-Tech Markets
in contemporary markets? Could there perhaps be an interaction effect, where network effects may enhance the effect of quality? What does the empiricaDoes Quality Win?Network Effects versus Quality in High-Tech MarketsGerard Tell is. Rakesh Niraj and Eden Yin*April 3,d, 2008Forthcoming Journal of Ma Does Quality Win Network Effects versus Quality in High-Tech Marketsy and network effects may interact in markets. Section 3 describes the method for collecting data to empirically test market response to quality versus network effects. Section 4 analyzes the data via graphical analysis of market share flows, categorical and logit analyses of switches in market lead Does Quality Win Network Effects versus Quality in High-Tech Marketsership, hazard analysis of lime for a small superior-quality brand to assume market leadership, and regression analysis of market share flows. The finDoes Quality Win Network Effects versus Quality in High-Tech Markets
al section discusses the study’s implications, limitations, and directions for future research.Theory of Competition on Quality and Network EffectsConGọi ngay
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