Presentation Transcript

1. Network Externality

2. Contents Definition Background Detailed Explanations Real Application in the Market Positive Feedback Negative Point Future Expansion Reference
3. Definition Network Externality The benefit from using a good increases with the number of other users of the same good The value created by the size of its installed base and the availability of complementary goods Installed base The number of users of a particular good Complementary goods Additional goods and services that enable or enhance the value of another good
4. Background The concept of Network Externality was initially introduced to just explain the growth of electronic space. But, as electronic space becomes one of the space of economic activity, network externality is most important theory of new coming economic phenomenon. The concept of network externality, which is introduced to understand ‘Informationization’ by network revolution, was understood as the most important concept explains new coming network economy.
5. Contents Definition Background Detailed Explanations Real Application in the Market Positive Feedback Negative Point Future Expansion Reference
6. DetailedExplanation Classic Example: Telephone Little Value Some Value Huge Value Positive Effect Negative Effect For product or service: more users, more value Telephone, etc For product or service: more users, less value = Congestion Traffic, etc
7. Detailed Explanation Network Effect gives two type of advantages…. Direct Immediate Result of other users adopting the same system Examples: Fax, email,… Indirect Secondary result of many people using same system Examples: Cheaper toners, OS system competition… Key point is how to attract customers Critical Mass plays pivotal role for establish early success However, saturation occurs sooner later P2P Occurs.
8. Detailed Explanation Negative Effect of Network Externality Lock in Effect Network Externality can result in lock-in effect Makes a customer dependent on a vendor for products and services Unable to use another vendor without substantial switching costs Resource Limit can occur After Saturation, n+1 person start to decrease the network value Exclusion value exists for some networks.. Provider Complacency No viable competitor exists for certain network providers.. Restrict resource, fee increase…
9. Contents Definition Background Detailed Explanations Real Application in the Market Positive Feedback Negative Point Future Expansion Reference
10. Example Language (that is, English)
11. Examples: Direct Network Externality Compatibility Windows(OS) and other applications competition between Beta and VHS Credit card Online service (Internet auction) Fax machine (fac-simile) Telephone network Railroad
12. Examples: Indirect Network Externality Product and its complement Camera and its lenz Software and hardware
13. Negativity of Network Externality Example in Naver exclusive in internet portal market
14. Contents Definition Background Detailed Explanations Real Application in the Market Positive Feedback Negative Point Future Expansion Reference
15. References http://www.emh.co.kr/xhtml/network_externalities.html http://mbastory.tistory.com/133 http://www.econ.yale.edu/alumni/reunion99/besen.htm http://www.kebic.or.kr/electronPrivate/main/display.asp?idx=449&g=1