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Stephen M. Maurer Goldman School of Public Policy

IT and Public Policy – Oct. 21, 2004. Networks. Interoperability. &. Standards. Stephen M. Maurer Goldman School of Public Policy. Networks. Introduction. Motivating Examples: TCP/IP & Berkeley Unix GSM The Web The Browser Wars etc., etc., etc…. Networks. Introduction.

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Stephen M. Maurer Goldman School of Public Policy

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  1. IT and Public Policy – Oct. 21, 2004 Networks Interoperability & Standards Stephen M. Maurer Goldman School of Public Policy

  2. Networks Introduction Motivating Examples: TCP/IP & Berkeley Unix GSM The Web The Browser Wars etc., etc., etc…

  3. Networks Introduction Old Economy Externalities Pollution (Negative) Flower Gardens (Positive) Network Externalities “I Care If You Use It” How Big Should the Network Be? Lawyers & WordPerfect . . .

  4. Networks Introduction 1. Direct Network Externalities MS Word 2. Indirect Network Externalities Operating Systems & Games 3. Physical Network Externalities Internet & Telephones

  5. Direct Price Networks Old Economy W (p) D = w(p) S(p) Users

  6. Direct Price W’ (p) Networks Old Economy W (p) Shifting Demand S(p) Users

  7. Direct Networks New Economy “I Care if You Use It” D = w(p, n) Multiple Demand Curves Implications for Efficiency

  8. Direct Price Networks Demand W (p, n1) W (p,n2) W (p,n3) Users

  9. Direct Price Networks Competition Notes: • Self-Consistency • Multiple Equilibria W (p, n1) W (p,n2) W (p,n3) P = MC n2 Users n1 n3

  10. Direct Price Networks Monopoly W (p, n1) W (p,n2) W (p,n3) MC n1 n2 n3 Users

  11. Direct Price Networks Monopoly W (p, n1) W (p,n2) W (p,n3) MC n1 n2 n3 Users

  12. Direct Price Networks Monopoly W (p, n1) W (p,n2) W (p,n3) MC n1 n2 n3 Users

  13. Direct Networks Tactics User Networks Penetration Pricing Consumers Expectations Hype Vaporware Attack Ads

  14. Direct Networks Tactics Commitment Strategies Second Sources Intel, IBM PC Renouncing Monopoly Netscape Navigator Investments & Alliances The PC Reputation

  15. Direct Networks Tipping Network Effects The Best Product Doesn’t Always Win! VHS vs. Beta R&D Effects Appropriability Increased Demand

  16. Direct Networks Tipping w l

  17. Direct Networks Efficiency Static Efficiency The Old Economy Answer How Big Should The Network Be? Which Institution Comes Closest? Dynamic Efficiency Lock-In vs. Stranding

  18. Direct Price Networks Efficiency W (p, n1) W (p,n2) W (p,n3) MC n1 n2 n3 Users

  19. Direct Price Networks Efficiency W (p, n1) W (p,n2) W (p,n3) MC n1 n2 n3 Users

  20. Direct Networks Efficiency Monopoly vs. Competition Network Externalities Price & DWL Variety Economies of Scale & Duplicated R&D Is The Competitive Solution Ideal?

  21. Direct Networks Efficiency Stranding vs. Lock-In Switching Costs Coordination Problems Aggressive Pricing Beta vs. Leaded Gasoline

  22. Direct Networks Efficiency Open Standards “Look and Feel” Ex Ante vs. Ex Post Efficiency How Big Does Π Have to Be? Happy Accidents

  23. Indirect Networks Consumers Care About Supply of a Complementary Good Platforms & Applications Operating Systems and Software Consoles and Games DVDs and Movies

  24. Indirect Networks More Applications More Consumers More Platforms More Platforms

  25. Indirect Networks Interoperability Closed Standards Exclusive Licenses • Games Open Standards Reducing The Platform’s Power Should We Protect Interfaces? Happy Accidents

  26. Physical Networks Natural Monopolies Hydroelectic Dams Marginal Cost Competitions Congestion

  27. Physical Networks Physical Networks Internet, Telephones Competition Congestion Opening The Network The Last Mile

  28. IT and Public Policy – Oct. 21, 2004 Networks Interoperability & Standards Stephen M. Maurer Goldman School of Public Policy

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