Bandwagon effects and competition in emerging technology markets: A qualitative meta-analysis

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School of Science | Master's thesis
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Date
2010
Major/Subject
Yritysstrategia ja kansainvälinen liiketoiminta
Mcode
TU-91
Degree programme
Language
en
Pages
74
Series
Abstract
Increasingly many new products and services are network dependent in this era of Internet and mobile networks. As part of communication networks, these exhibit direct network effect and many products exhibit indirect network effect by forming ecosystems of complementary products and services. In addition, these markets are likely to he affected by herding, thus making these markets affected by many bandwagon effects. All of these make demand in ICT markets dependent on installed base or expected installed base, which in turn implies that traditional demand curves do not apply as such. This makes these markets prone to tipping - a kind of dynamic equilibrium - which in turn makes these markets likely to support only few technology standards. The theories on bandwagon effects predict large scale market failure which is not repeated in empiria. In order to explore this dissonance, two large bodies of theory are covered: theories of bandwagon effects and theories of the product life cycle. These two are then integrated by path dependence into a model of bandwagon competition. All that is needed is a simple decision rule. This paper focuses on two related and overlapping research questions. One is how to deal with these bandwagon effects in new information and communication technology product or service introduction, the other is what significance bandwagon effects have in competitive markets for new product or service introduction. What I find is that companies have benefited from bandwagon effects either by charging price premiums or by gaining larger market share. Companies have not been able to get both. The empirical evidence thus indicates that bandwagon markets are not prone to market failure, at least per current definitions.
Description
Supervisor
Lamberg, Juha-Antti
Thesis advisor
Gustafsson, Robin
Keywords
bandwagon effect, nätverkseffekt, competition, konkurrens, ICT, informations- och kommunikationsteknologi
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