Product Strategy for Innovators in Markets With Network Effects

Topics:
Competitive Strategy,
Marketing Strategy,
Product Development and Design
Tags:
Institute For Operations Research,
Management,
Network,
Network Effect,
Strategy
Source:
Institute for Operations Research and the Management Sciences

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Overview: This paper examines four alternative product strategies available to an innovating firm in markets with network effects: single-product monopoly, technology licensing, product-line extension, and a combination of licensing and product-line extension. The paper addresses three questions. First, what factors affect the attractiveness of each of the four product strategies? Second, under what conditions will any particular strategy dominate the others? Third, what is the impact of licensing fees on the profitability of a licensing strategy? The paper shows that offering a product line utilizes consumer heterogeneity to increase the total user base and is superior to free licensing when the innovator's cost of producing a low-quality product is low and network effects are weak.

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Format: PDF | Size: 170KB | Date: Sep 2003 | Pages: 12

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