| Abstract: |
Most types of networks, over time, spawn the creation of complementary stocks
that enhance network value. Computer operating systems, for example, induce
the development of the comple- mentary stock of software applications that
increase the value of the operating system. In this paper, we challenge the
conventional wisdom that a large network, which induces the creation of large
complementary stocks, serves as a barrier to entry that protects the incumbent
from competi- tion or network capture. We show that a larger network may
either deter or attract entry depending on the relation between the network
quality and the cost of an innovator?s network product. The probability of
entry also depends on the level of compatibility between the potential
entrant?s technology and existing complementary stocks, which in turn is
in?uenced by the strength of the intellectual-property-rights environment.
Intellectual property rights and the associated threat of entry may a¤ect an
incumbent?s choice of network size in counterintuitive ways. |