First In, First Out? The Surprising Effects Of Network Externalities On Pioneer Survival

Authors: Raji Srinivasan, Gary L. Lilien, Arvind Rangaswamy

As the economy becomes more interconnected, more products in the computing, telecommunications and consumer electronics industries (e.g., video-cassette recorders, personal computers) exhibit network externalities. Consequently, an extensive literature, largely in economics, has investigated the policy and welfare implications of network externalities. A consistent theme from this research is that network externalities alter the dynamics of market evolution, with important implications for marketing strategy formulation.

In this study, we examine the role of network externalities in market entry strategy, specifically pioneering. We investigate whether and how network externalities influence the survival duration of pioneers. Using the Accelerated Failure Time model on data from the office products and consumer durables industries, we study the effects of network externalities (in conjunction with other firm and product characteristics) on the survival duration of pioneers. A surprising conclusion from our analyses is that network externalities are associated with reduced survival duration of pioneers. We also find significant interaction effects of product and firm characteristics with network externalities in influencing the survival of pioneers. We discuss the implications of our results for both theory and practice.