Should Buyers Try to Shape IT Markets Through Nonmarket (Collective) Action? Antecedents of a Transaction Cost Theory of Network Effects

Should Buyers Try to Shape IT Markets Through Nonmarket (Collective) Action? Antecedents of a Transaction Cost Theory of Network Effects

Kai Reimers (RWTH Aachen University, Germany) and Mingzhi Li (Tsinghua University, China)
DOI: 10.4018/978-1-59904-561-0.ch010
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Abstract

This chapter develops a transaction cost theoretic model of network effects and applies it to assessing the chances of users to influence, through collective action, the range of technological choices available to them on IT markets. The theoretical basis of the model is formulated through a number of empirically refutable propositions that overcome some conceptual and empirical difficulties encountered by the traditional interpretation of network effects as (positive) network externalities. The main difference between our model and modeling network effects as network externalities is that network effects are seen as caused by the costs of purchasing and marketing new technology, that is, transaction costs, rather than by the benefits of using a new technology. A first application of the model suggests that users can significantly improve the chances of replacing an established technology with a new, potentially superior one if they set up an organizational structure that serves as a conduit of information exchange and knowledge sharing. This, however, would call for a rather different type of collective user action than exists today in the form of user groups.

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