I analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. I discuss their sources and their effects on pricing and market structure. I distinguish between results that do not depend on the underlying industry microstructure (the 'macro' approach) and those that do (the 'micro' approach). I analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. I also briefly discuss the issue of interconnection fees for bottleneck facilities.

This paper analyzes a class of games of incomplete information where each agent has

Accepted for publication in

Innovation diffusion theory provides a useful perspective on one of the most persistently challenging topics in the IT field, namely, how to improve technology assessment, adoption and implementation. For this reason, diffusion is growing in popularity as a reference theory for empirical studies of information technology adoption and diffusion, although no comprehensive review of this body of work has been published to date. This paper presents the results of a critical review of eighteen empirical studies published during the period 1981-1991. Conclusive results were most likely when the adoption context closely matched the contexts in which classical diffusion theory was developed (for example, individual adoption of personal-use technologies) or when researchers extended diffusion theory to account for new factors specific to the IT adoption context under study. Based on classical diffusion theory and other recent conceptual work, a framework is developed to guide future research in IT diffusion. The framework maps two classes of technology (ones that conform closely to classical diffusion assumptions versus ones that do no0 against locus of adoption (individual versus organizational), resulting in four IT adoption contexts. For each adoption context, variables impacting adoption and diffusion are identified. Additionally, directions for future research are discussed. 1.

In this paper we examine the dynamic resolution of technological adoption in \hardware/software" systems. We are interested in determining to what extent software availability a®ects hardware sales and/or vice-versa. We ¯st develop a dynamic model for estimating demand when costs (and hence prices) are declining over time. We then estimate it empirically for the case of compact disc players. We ¯nd that there is \two-way " feedback between hardware and software for compact disc players. The result that the availability of compatible software (the CDs) plays a signi¯cant role in determining the adoption of compact disc players is likely due in part to the fact that compact disc players were not compatible with any existing audio standard.

for helpfiul discussions on earlier drafts. The Strategic Management Program at

This paper investigates how the tying of complementary products can be used to both preserve and create monopoly positions, where our focus is on the use of tying to deter the entry of efficient producers. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in the future. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a Tying is a common practice in many markets, i.e., the seller of product A refuses to sell A to a consumer unless the consumer also purchases B (in this scenario product A is referred to as the tying product and B as the tied product). Examples are numerous such as IBM’s famous practice of requiring purchasers of IBM’s tabulating machines to also purchase tabulating cards from IBM, and Microsoft’s

We seek to determine the presence and causes of network externalities for the automated clearinghouse (ACH) electronic payments system, using a monthly panel data set on individual bank adoption of ACH. We construct a model of ACH usage that shows how to separately identify network externalities from technological advancement and peer-group effects. We find significant evidence of network effects and find evidence that these network effects are not internalized. Moreover, a large part of these network effects is due to informational problems. Sunk costs of adoption appear to be low.

Introduction The task of deciding when and how to innovate is not an easy one. Consider the following managerial quandaries: . A CIO has joined a firm that lags in the adoption of emerging information technologies. He wonders: just how innovative should this firm be going forward, and what can be done to position it to be more willing and able to assume the challenge of early adoption? . A VP of marketing resides in a firm that generally leads in IT innovation, and must decide whether to endorse the immediate adoption of a particular innovation with major implications for marketing strategy. She wonders: are her firm's needs in this area and "readiness" to adopt sufficient to justify taking the lead with this specific innovation? If so, how should the assimilation process be managed? . A product manager must design a deployment strategy for an innovative software development tool. He wonders: how fast can this technology diffu

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