Adoption of System Goods

The purpose of our work is to give an overview of thetheoretical and empirical literature on direct andindirect network effects and to use the insightsgained from this review to develop amodel suitable for numerical simulation. This modelwould allow us to measure the impact of a number ofenvironmental parameters on the adoption process, aswell as to the possibility of negative impacts ofstandardisation, namely the possibility that atechnological standard emerges, which later on in theprocess proves to be inferior, and that thedevelopment of the market might depend on stochasticresults early on in the developmentof a market.Based on this review of literature, we develop ourown model. Here, consumers belong either to the groupof innovators, who do not care for network effects,or to the group of imitators, who takenetwork effects into account. It will be supposedthat the incumbent technology was themonopolist, which faces new competition from acompeting technology, which has a lowervalue indirect utility, but a higher growth rate oftechnology so that it will eventually overtake theincumbent and become the new superior technology.