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Produo conjunta menos custosa se :
( ) ( ) ( ) p y C p y C p y y C , , 0 , 0 , , ,
2 1 2 1
+ <
Se <: economias de escopo
Se =: produo separvel
If.>: deseconomias de escopo (produo conjunta mais custosa)
Uma fonte de economias de escopo a presena de Complementaridades de Custo:
Complementaridades de custo existem se
( )
C C y y p y y
ij i j
= < c c c
2
1 2
0 , ,
Outra fonte refere-se custos quase-fixos custos que so 0 se y=0, mas so
fixos (e diferentes de zero) se y> 0
possvel existir economias de escopo entre alguns pares de bens mas no
entre outros
Ie, se o custo marginal do bem i cai quando mais do bem j produzido
Economias de escopo
Definio : Quando mais barato produzir dois produtos
simultaneamente (produo conjunta) do que separado
caracteriza-se a existncia de economias de escopo
(Baumol, Panzer e Willig, 1982)
C(q
1
,q
2
) < C
1
(q
1
) + C
2
(q
2
)
Ex: C(q
1
) = 10 + 2q
1
C(q
2
) = 10 + 3q
2
C(q
1
,q
2
) = 10 + 2q
1
+ 3q
2
=> neste caso, q
1
e q
2
tm custos fixos comuns.
Ex: C(q
1
) = 5 + 2q
1
C(q
2
) = 5 + 3q
2
C(q
1
,q
2
) = 10 + 3q
1
+ 2q
2
=> custos dependem dos nveis de q
1
e q
2
.
|
.
|
\
|
)
= =
n
i
i
n
i
i
Cq C q C
1 1
) (
Assumindo que q
1
e q
2
variam entre 1 e 2.
C(q
1
) = 5 + 2q
1
C(q
2
) = 5 + 3q
2
C(q
1
,q
2
) = 10 + 3q
1
+ 2q
2
=> Custos dependem do nvel de produo
(q
1
,q
2
) C
1
(q
1
) C
2
(q
2
) C(q
1
,q
2
)
(1,1) 7 8 15
(1,2) 7 11 17
(2,1) 9 8 18
(2,2) 9 11 20
Economias de escopo
Definio formal
S
C
=
C(Q
1
, 0) + C(0 ,Q
2
) - C(Q
1
, Q
2
)
C(Q
1
, Q
2
)
Assume valor crtico no caso em que S
C
= 0
S
C
< 0 : ausncia de economias de escopo; S
C
> 0 :
presena de economias de escopo.
Considerando o exemplo:
S
C
=
10 + 25Q
1
+ 10 + 30Q
2
- (10 + 25Q
1
+ 30Q
2
- 3Q
1
Q
2
/2)
10 + 25Q
1
+ 30Q
2
- 3Q
1
Q
2
/2
> 0
) ( ) (
) , ( ) ( ) (
2 1
2 1 2 1
Q C Q C
Q Q C Q C Q C
SC
+
+
=
Economies of scope can be measured by as
follows:
Where C(Q
1
,Q
2
) is the cost of jointly producing goods 1
and 2 in the respective quantities; C(Q
1
) is is the cost of
producing good 1 alone, and similarly for C(Q
2
).
Example: Let C(Q
1
) = $12 million; C(Q
2
) = $8 million;
and C(Q
1
,Q
2
) = $17 million. Thus:
15 .
20 $
3 $
8 $ 12 $
17 $ 8 $ 12 $
= =
+
+
= SC
Thus joint production of goods 1 and 2 would result in a 15
percent reduction in total costs
Ocorre quando a produo de mais de um bem numa mesma
instalao produtiva implica numa reduo do custo unitrio de
produo ou distribuio de cada bem individual
Fontes de economias de escopo
Repartio de insumos
Mesmo equipamento para vrios produtos (flexibilidade
produtiva)
Repartio de gastos de propaganda para criar brand name
Realizao de gastos gerais de marketing e R&D
Complementaridade de custos
Produo de um bem reduz o custo de produzir o outro
Petrleo e gs natural
Petrleo e matrias primas petroqumicas
Software e servios de suporte
Economias de escopo(cont.)
Cost Complementarity
The marginal cost of producing good 1
declines as more of good two is produced:
AMC
1
/AQ
2
< 0.
Examples?
Quadratic Multi-Product Cost
Function
C(Q
1
, Q
2
) = f + aQ
1
Q
2
+ (Q
1
)
2
+ (Q
2
)
2
MC
1
(Q
1
, Q
2
) = aQ
2
+ 2Q
1
MC
2
(Q
1
, Q
2
) = aQ
1
+ 2Q
2
Cost complementarity: a < 0
Economies of scope: f > aQ
1
Q
2
C(Q
1
,0) + C(0, Q
2
) = f + (Q
1
)
2
+ f + (Q
2
)
2
C(Q
1
, Q
2
) = f + aQ
1
Q
2
+ (Q
1
)
2
+ (Q
2
)
2
f > aQ
1
Q
2
: Joint production is cheaper
A Numerical Example:
C(Q
1
, Q
2
) = 90 - 2Q
1
Q
2
+ (Q
1
)
2
+ (Q
2
)
2
Cost Complementarity?
Yes, since a = -2 < 0
MC
1
(Q
1
, Q
2
) = -2Q
2
+ 2Q
1
Economies of Scope?
Yes, since 90 > -2Q
1
Q
2
Mobilizing assets
Sources of Economies of Scope
Utilization of excess capacity (especially in the
presence of indivisibilities)
Utilization of fixed marketing/retailing costs/infrastructure
Exploitation of reputation and brand identity
Common terms used in (implicitly) discussing economies
of scope include:
Leveraging core competencies
Competing on capabilities
Fontes de economias de escopo
Repartio de insumos
Mesmo equipamento para vrios produtos (flexibilidade
produtiva)
Repartio de gastos de propaganda para criar brand
name
Realizao de gastos gerais de marketing e R&D
Complementaridade de custos
Produo de um bem reduz o custo de produzir o outro
Petrleo e gs natural
Petrleo e matrias primas petroqumicas
Software e servios de suporte
Economias de escopo(cont.)
Umbrella Branding e Economias
de Escopo
Observa-se que que marcas como SONY
e KRAFT cobrem diferentes produtos
Existem economias de escopo no
desenvolvimento e manuteno dessas
marcas
Novos produtos so facilmente
introduzidos quando existe uma marca
estabelecida com a imagem desejada
(SONY introduziu cmeras digitais)
Umbrella Branding - Limitaes
Umbrella branding pode nem sempre
ajudar
Exemplo: Nos EUA, Lexus uma marca
separada da Toyota
Imagens de marca conflitantes podem
causar deseconomias de escopo
Flexible Manufacturing
Extreme version of economies of scope
Changing the face of manufacturing
Production units capable of producing a range of
discrete products with a minimum of manual
intervention
Benetton
Custom Shoe
Levis
Mitsubishi
Production units can be switched easily with little if any
cost penalty
requires close contact between design and
manufacturing
Flexible Manufacturing (cont.)
Take a simple model based on a spatial analogue.
There is some characteristic that distinguishes
different varieties of a product
sweetness or sugar content
color
texture
This can be measured and represented as a line
Individual products can be located on this line in
terms of the quantity of the characteristic that they
possess
One product is chosen by the firm as its base product
All other products are variants on the base product
Flexible Manufacturing (cont.)
An illustration: soft drinks that vary in sugar
content
0 1 0.5
This is the
characteristics
line
Each product is located
on the line in terms
of the amount of the
characteristic it has
Low High
(Diet) (LX) (Super)
The example (cont.)
Assume that the process is centered on LX as base product.
0 1 0.5
Low High
(Diet) (LX) (Super)
A switching cost s is incurred in changing the process to
either of the other products.
There are additional marginal costs of making Diet or Super - from
adding or removing sugar. These are r per unit of distance
between LX and the other product.
There are shared costs F: design, packaging, equipment.
In the absence of shared costs there would be specialized firms.
Shared costs introduce economies of scope.
Diseconomies of scope
Production can also exhibit diseconomies
of scope when the cost of producing two
products together is higher than the cost of
separate production.
This was true for the pet food company
producing so many different products in one
factory was more expensive than producing
each food in a different factory would have
been because of the cost of set-up, clean-up
and transition times associated with
producing each different pet food
Anecdote: pet food production
A pet food company has 2,500 products
(SKUs) with 200 different formulas
They receive a lot of pressure from large
customers like Wal-Mart to reduce prices.
To respond to Wal-Mart, the company shrinks it
product offerings
70 SKUs w/13 formulas
This led to a 25% savings for the company
because of reduced production costs (see
graph)
Pet food production graph
Production Costs of Information
First-copy (fixed) costs dominate
Sunk costs: not recoverable
Variable costs small; no capacity
constraints
Microsoft profit margins of 92%
Leads to significant supply-side
economies of scale and scope
Economies of Scale and Scope
Traditional supply-side economies (cost effects)
Economies of scale
cost of incremental units less than average cost
equivalently: average cost is declining in units produced
often due to fixed costs
Economies of scope
cost of producing additional products reduced
often due shared resource
E.g., Google infrastructure allows them to offer additional
services at relatively low cost (e.g., Google Scholar)
Economies of Scale and Scope
Demand side (revenue effects)
Economies of scale
value of product increases with number of users
often due to network externalities
Economies of scope
value of product depends on availability of other products
systems effects: DVD player + disk, hardware + software
Interoperability/compatibility
Windows + MS Office
Google calendar + Gmail
due to branding, reputation, etc
Virgin Air, Virgin phone, etc.
Implications for Market
Structure
Scale + scope on cost/revenue sides imply:
market cannot be "perfectly competitive
bidding wars lead to downward price spirals
Britannica, Encarta, Wikipedia
spreadsheet wars in mid-80s
Two sustainable structures
Dominant firm/monopoly with entry barrier such as
cost advantage, network effects (e.g., Microsoft)
Differentiated product (e.g., magazines)
and combinations of above
A Curva de Aprendizagem
Economias de aprendizagem so
diferentes das economias de escala
Economias de aprendizagem dependem
preferencialmente de produtos
cumulativos do que da taxa de produo
A aprendizagem leva a custos mais
baixos, maior qualidade e preos e
marketing mais efetivos
Inclinao da Curva de
Aprendizagem
A inclinao da curva de aprendizagem
o tamanho relativo do custo mdio quando
a produo cumulativa dobra
Uma inclinao de 0,9 indica que o custo
mdio diminuir em 10% quando a
produo cumulativa dobrar
A aprendizagem torna-se plana ao longo
do tempo e a inclinao eventualmente
torna-se 1,0
Efficient pricing or competition policies
Learning Curves
Learning Curves account for the cost advantages associated
with experience and know-how
Can occur at the individual level
Can occur at the organizational level
Learning curve advantages can be manifest in:
Lower costs
Higher quality
Curvas de Aprendizado
Learning curves
Discussion: Every time an airplane manufacturer doubles
production, marginal costs decrease by 20%.
Learning curves graph
Measures the decline in average cost when
cumulative output is doubled.
Progress Ratio
PR = AC
1
/AC
2
Median for U.S. is about 0.80, which
implies a reduction in unit cost of 20% for
each doubling of cumulative output.
Economies of Experience can be measured
using Experience Elasticity:
AVC
Q
Q
AVC
Output Cumulative
AVC
Q AVC
Q AVC
A
A
=
e
A
A
=
e
,
,
%
%
125
Last year Priemcorp celebrated its 20
th
horrible midterm.
AVC was 20h. This year, the 30
th
midterm had an AVC of
10h. Calculate elasticity of experience.
67 . 1
15
25
10
10
2 / ) 20 10 (
2 / ) 20 30 (
20 30
20 10
,
,
,
=
e
+
+
A
A
=
e
Q AVC
Q AVC
Q AVC
AVC
Q
Q
AVC
Aprendizado e
Economias de escala
Economia de
escala: reduo
de custo unitrio
com maior
produo.
Learning by
doing: reduo
de custos
unitrios em
funo da maior
habilidade.
Possibilidade de
separao dos
efeitos
Unit
Cost
Output
Economies
of Scale
AC
1
AC
2
B
A
C
Learning
Unit
Cost
Output
Unit
Cost
Output
Economies
of Scale
AC
1
AC
2
B
A
C
Learning
Economies
of Scale
AC
1
AC
2
B
A
C
AC
1
AC
2
B
A
C
Learning
AC1 e AC2 representam duas curvas de custo
mdio para nveis distintos de conhecimento.
(Pindyck & Rubinfeld, 1998)
Learning by Doing
Learning curves
Learning by Doing
Application: Learning by Doing in Semiconductors
The learning curve has forced firms to price for market
share and to anticipate dramatic cost reductions as
output increases.
Learning by doing is so rapid in the semiconductor
industry that, while cumulative knowledge about a
previous generation of semiconductors increases the
probability of developing the next generation of
semiconductors, cumulative knowledge from two
generations back has no significant effect on the
probability of developing a new technology.
Learning curves
Estratgia da Curva de
Aprendizagem
Expandir a produo rapidamente para
obter benefcios da curva de
aprendizagem e alcanar vantagem em
custo
Pode levar a perdas no curto prazo mas
assegura lucratividade a longo prazo
Aprendizagem Individual e
Organizacional
A aprendizagem depende das pessoas
A aprendizagem organizacional inclui a
experincia que as pessoas tm e
complementam com os outros
A mobilidade de funcionrios pode levar a
perda de experincia na organizao
Por outro lado, a reduo da rotatividade
pode abafar a criatividade
Curva de Aprendizagem e
Economias de Escala
A aprendizagem reduz o custo unitrio
atravs da experincia
Tecnologias intensivas em capital podem
oferecer economias de escala mesmo se
no houver aprendizagem
Processos complexos de trabalho
intensivo podem oferecer economias de
aprendizagem sem economias de escala
DIFERENCIAO DE
PRODUTO
Diferenciao de Produto
1) Definio
2) Formas de representao
3) Condicionantes
4) Impactos: efeitos sobre custos e
demanda
5) Tipos: diferenciao horizontal e
vertical;
6) Formas de Mensurao
Diferenciao de produto - Formas de
Representao
1. Produto como vetor de caractersticas
2. Analogia entre atributos requeridos
(que definem utilidade) e dimenso
espacial
Mapa de indiferena concntrico
Padres de substitubilidade entre bens
3. Caractersticas como bens que
definem estrutura de preferncias
Produto
Product
Function Technology
Design
Packaging
Efficacy
Features
Guarantees
Availability
Delivery
After
Sales
Service
Before
Sales
Service
During
Sales
Service
Warranties
Add-Ons
Finance
Advice
Corporate Image
Reputation
Value Perceptioms
Quality Perceptioms
Organisation
Brand Name
Other User
Recommendations
Services Intangibles
Price
Modelo Linear de Atributos do Produto
(tecnologias de consumo)
a
1
a
2
0
x
O raio 0x mostra as combinaes de a
1
e a
2
disponveis para montantes sucessivamente
maiores do bem x
y
O raio 0y mostra as combinaes de
a
1
e a
2
disponveis para montantes
sucessivamente maiores do bem y
z
O raio 0z mostra as
combinaes de a
1
e
a
2
disponveis para
montantes
sucessivamente
maiores do bem z
Modelo Linear de Atributos do Produto
Se o indivduo gasta toda a sua renda
na aquisio do bem x
x* = I/p
x
Isto implica em:
a
1
* = a
x
1
x* = (a
x
1
I)/p
x
a
2
* = a
x
2
x* = (a
x
2
I)/p
x
Modelo Linear de Atributos do Produto
a
1
a
2
0
x
y
z
x* a combinao de a
1
e a
2
que seria obtido se
toda a renda for gasta na aquisio de x
x*
y*
y* a combinao de a
1
e a
2
que
seria obtida se toda renda fosse gasta
na aquisio de y
Z*
z* a combinao de
a
1
e a
2
que seria obtida
se toda a renda fosse gasta
na aquisio de z
Modelo Linear de Atributos do Produto
(tecnologias de consumo)
a
1
a
2
0
x
y
z
x*
y*
z*
Todas as possveis combinaes resultantes
da mistura dos trs bens so representadas
Pela rea triangular x*y*z*
Um indivduo maximizador da utilidade nunca
consumiria quantidades positivas de todos os
trs bens
Modelo Linear de Atributos do Produto
a
1
a
2
0
x
y
z
Indivduos com preferncias na direo
a
1
tero curvas de indiferena similares
a U
0
e consumiro apenas y e z
U
0
Indivduos com preferncias
na direo a
0
tero curvas de
indiferena similares a U
1
e consumiro apenas
x e y
U
1
Modelo Linear de Atributos do Produto
O modelo prev que solues de canto
(nas quais os indivduos consomem um
montante zero de alguns bens) so
relativamente comuns
Especialmente em situaes nas quais os
indivduos atribuem valor a poucos atributos
em relao aos bens que podem escolher no
mercado.
Padres de consumo podem modificar-se
de forma abrupta se renda, preos ou
preferncias vierem a se modificar.
Diferenciao de Produto - Definio
Objetivo:
reforo de poder de mercadoe isolamento relativo
do produtor em relao concorrncia
Desdobramentos:
reforo da independnciado produtor
reduo da indiferena do consumidor fortalecendo
relaes de clientela
gerao de diferenciais de preo a favor da firma
(porm, nem sempre produtos diferenciados geram
diferenciais de preo)
Definio Geral:
produtos diferenciados podem ser caracterizados
como nicos por quem consome ou produz
Condicionantes da Diferenciao
1) Aspectos Locacionais
varivel-chave: acessibilidade (consumidor x
produtor)
3 elementos crticos:
1) localizao da populao: condies de demanda
2) localizao da indstria: condies de oferta.
3) outros fatores estruturais relevantes (ex: custos de
transporte.
diferenciao atrelada a zonas de influncia
definidas em funo de custos de transporte.
consolidao de reas (ou esferas) de influncia, a
partir das quais podem ser criadas relaes de
clientela entre produtores e consumidores.
Condicionantes da Diferenciao
2) Gostos (tastes) ou Preferncias
varivel-chave: qual o grau de autonomia (ou
dependncia) do consumidor? => Fatores condicionantes
1) independncia do julgamento pelos consumidores
2) influncia de foras psicolgicas e sociais na definio de
gostos
3) complexidade psicolgica de indivduos
possibilidade de representao de gostos atravs de
conjunto de atributos do produto(Lancaster)
existncia de conjunto ou mix de atributos, a partir dos
quais os consumidores definem seus padres de
preferncias em relao a determinados bens ou
servios.
O que impede evoluo na direo de padro
concorrencial? A importncia de time-lags
Condicionantes da Diferenciao
3) Disponibilidade de Informaes:
Hiptese: informao imperfeita por parte de consumidores
(lack of information)
Diferenciao:
1) search goods: existncia de determinados procedimentos
adotados pelos consumidores na busca de informaes =>
nfase em informaes objetivas
2) experience goods: relevncia de obteno de informaes
atravs de avaliao no uso e da experincia => nfase em
informaes subjetivas
hiptese: condies iniciais de localizao de informaes no
so independentes do comportamento dos produtores
importncia da transmisso de informaes tanto de natureza
objetiva como subjetiva que auxiliam a avaliao da
capacidade dos bens e servios satisfazerem as necessidades
dos consumidores.
Condicionantes da Diferenciao
3) Disponibilidade de Informaes (continuao):
Consolidao de brand name: impacto em termos da reduo
do custo para obteno de informaes pelos consumidores;
diferenciao baseada em interveno sobre as informaes
disponveis ao consumidor, atuando no sentido de influenciar o
conjunto de informaes sobre o qual o consumidor realizar
sua escolha.
estratgia de diferenciao contribui para solucionar o problema
de ausncia de informao (lack of information) com o qual os
consumidores recorrentemente se defrontam no caso de bens
de experincia.
A partir do processo de diferenciao, consumidores podem
encontrar produtos e servios adaptados ao seu referencial de
preferncias de maneira mais fcil e menos onerosa em termos
dos custos envolvidos no levantamento e avaliao de
informaes relevantes.
Tipos de Diferenciao : 1) Diferenciao
Horizontal (variedade)
Um produtor diferencia horizontalmente o seu
produto quando o torna diferente do dos seus
concorrentes de modo a torn-lo mais atrativo
para um determinado grupo de consumidores
mas menos atrativo para outro grupo de
consumidores
Se o produtor cobra o mesmo preo dos rivais
no existe unanimidade entre os consumidores
quanto s preferncias e portanto cada produtor
captura uma parte do mercado.
Tipos de Diferenciao : 2) Diferenciao
Vertical (qualidade)
Um produtor diferencia verticalmente o seu produto
quando aumenta a qualidade do seu produto
relativamente dos concorrentes .
Ex: carro com airbag vs. carro sem airbag.
Este produtor pode cobrar preos mais altos
porque alguns consumidores esto dispostos a
pagar mais por qualidade adicional.
Se os preos fossem iguais aos dos concorrentes
todos os consumidores prefeririam comprar este
produto em que todos reconhecem maior qualidade
Tipos de Diferenciao
Diferenciao de Produto Horizontal
Incremento da diferenciao => Reforo da
Popularidade de produtos => Reconhecimento de
atributos nicos no produto.
Impactos: volume de vendas elevado => reduo de
custos fixos unitrios vinculados propaganda =>
maior rentabilidade
Mais comum no caso de experience goods
Diferenciao de Produto Vertical
Incremento da diferenciao => Impacto sobre
qualidade percebida de produtos => Diferencial de
Preos
Impactos de diferenciao vinculados basicamente
elasticidade-preo e rentabilidade
Mais comum no caso de search goods
Diferenciao de Produtos: Formas de
mensurao
Problemas:
ausncia de estatstica bsica
diferenciao vinculada a produtos individuais e no a
mercados.
Formas Possveis de Mensurao:
1) nfase na independncia do produtor: Comparao de
ndices de preos e medidas de elasticidade-preo para
avaliar ocorrncia de Diferenciao Vertical;
2) nfase na vinculao do consumidor: anlise da
lealdade do consumidor marca (brand name) para
avaliar Diferenciao Horizontal => anlise da
estabilidade e dos diferenciais de market-share entre
lderes e demais firmas.
3) Avaliao dos gastos em propaganda como proporo de
vendas.
Diferenciao do Produto
Empresas Existentes
Marca j criada
Lealdade dos clientes
Esforo acumulado de publicidade
Produto identificado pelo consumidor
Newcomers
Grande investimento para captar clientes
Marca desconhecida
Longo perodo de tempo
BARREIRAS ENTRADA
ECONOMIAS DE REDE
Network externalities are not the
same as economies of scale
Economy of scale means that making many copies
of something is cheaper, per item, than making a
few.
Network externalities means that there are benefits if
many people use the same thing.
They both may encourage monopolies, but they are
different.
By the way, the phrase network externalities was
coined by Jeff Rohlfs, once at Bell Labs.
Economias de rede - caractersticas
Presena de interaes entre consumidores e produtores,
baseadas em princpios de conexo, compatibilidade e
interdependncia
Redes econmicas de dois tipos: redes tcnicas e redes no-
tcnicas.
Redes tcnicas: produtores e consumidores esto interligados
atravs de uma infra-estrutura fsica. Uma rede tcnica
caracterizada por um conjunto de lugares geogrficos
(pontos) interconectados formando um sistema composto
por ns e elos interdependentes.
Redes no-tcnicas: interligam produtores e consumidores
por elos virtuais, relacionados a complementaridades no
consumo e na produo.
Associao: economias de rede => indstrias de rede
Presena de rendimentos crescentes decorrentes da
especializao dos agentes e de ganhos de aprendizado.
Consolidao de uma infra-estrutura particular, a qual implica
um certo grau de irreversibilidade para investimentos.
What is a Network Industry?
Broad definition: An industry that connects users to
each other or to producers through a connected system
(or systems) of physical infrastructure.
Communications networks
Power grids
Transportation systems
Software platforms
Economic definition: An industry whose good or
service increases in value to each individual user as the
number of other users of the same good or service
increases.
Communications networks
Software platforms
Transportation systems
Network industries include:
The telephone
Main characteristics:
1. Complementarity, compatibility and standards
2. Consumption externalities
3. Switching costs and lock-in
4. Significant economies of scale in production
email
internet
computer hardware, computer software
music players, music titles
video players, video movies
banking services
airline services
legal services
What is a
Network Externality
The consumers perspective: A network externality is the added
benefit a consumer gets as additional consumers join the same
network or use the same product. Phone service may benefit
consumers if they can call 10 other people, but it becomes
increasingly valuable as they can call 100, 1000, 1 million+ other
people. The same holds for a word processing program, for
example. It is the benefit that comes from being able to
communicate or interact with a greater number of people, which
thereby makes the given network more valuable to each user.
The competitive firms perspective: A rivals network externality
is a barrier to entry. Once a firm has the market lead and provides
the greatest network benefit to subscribers, rivals must not only beat
the price and technology of the leading firm, but must do so by
enough to compensate consumers for the network benefit they lose
in switching from the leader to the smaller rival.
Externalidades de Rede
Externalidades podem ser definidas como um efeito da ao de um
agente econmico sobre um outro, que ocorre fora do mercado.
Externalidades em rede associadas os efeitos diretos e indiretos
da interdependncia entre as decises de agentes.
As externalidades manifestam em funo da interdependncia das
funes demanda ou das funes de produo das indstrias de
rede.
Nas indstrias de rede h outros tipos de externalidades, positivas
e negativas, tanto pelo lado da oferta quanto pelo lado da demanda,
associadas interdependncia tcnica e comportamental dos
consumidores e produtores.
Externalidades em rede desempenham um papel crucial na definio
de padres, normas e procedimentos tcnicos que orientam o
comportamento dos agentes.
As externalidades de rede traduzem-se numa maior convergncia
da racionalidade e das estratgias dos agentes e numa ampliao
dos nveis de eficincia e bem estar.
Externalidades de Rede - Principais Tipos
externalidades tcnicas (Meade, 1954), relacionadas a situaes
nas quais a interdependncia entre os agentes do ponto de vista
tcnico resulta em modificaes nas caractersticas da funo de
produo das empresas ofertantes no mercado;
externalidades pecunirias (Scitovski, 1954) que se traduzem em
uma mudana nos preos relativos dos fatores e,
conseqentemente, em modificaes das estruturas de custo das
firmas;
externalidades tecnolgicas (Antonelli, 1992) associadas a efeitos
do tipo spill-over que resultam em mudanas no ritmo de adoo e
difuso e inovaes em determinado mercado;
externalidades de demanda (Katz e Shapiro, 1986) presentes em
situaes nas quais a demanda de bens oferecidos por cada
unidade afetada pela dimenso e pelo ritmo de expanso da
demanda de outras unidades, o qual, por sua vez, influenciado
pela maneira como padres de interconexo so incorporados
funo utilidade dos consumidores
Economias de Escala e Escopo e Indstrias de
Rede
Economias de Escala
Indstrias de rede requerem grandes investimentos em infra-estrutura.
Investimentos representam custos-fixos elevados (sunk costs), quando
comparados aos custos operacionais.
Custos fixos das indstrias de rede no aumentam na mesma proporo que
a produo, resultando numa curva de custo mdio de longo-prazo
decrescente, com rendimentos crescentes de escala.
Escalas mnimas eficientes so significativamente elevadas, implicando em
concentrao na oferta dos bens ou servios.
Economias de escopo
Entendidas como a reduo do custo de produo de um bem ou servio,
quando o mesmo produzido de forma conjunta com outros.
Fronteiras entre indstria de rede costumavam ser bem delimitadas, sendo
ratificadas pela regulao setorial.
Inovaes tecnolgicas juntamente com o processo de liberalizao das
indstrias de rede, possibilitam aproveitamento das economias de escopo.
Papel do compartilhamento da infra-estrutura entre servios
Economias de Densidade e Indstrias de
Rede
Economias de densidade referem-se aos ganhos econmicos que
podem ser obtidos pelos produtores atravs da agregao da
demanda de consumidores.
A agregao da demanda de consumidores resulta em economias
importantes para os investimentos na capacidade de suprimento. Isto
decorre do fato dos consumidores demandarem o servio em
momentos diferentes no tempo. Desta forma, quanto maior a
quantidade de consumidores, maior ser a distribuio da demanda no
tempo (ao longo do dia, semana e ano).
Com uma melhor distribuio da demanda ao longo do tempo, os
custos fixos so rateados por uma maior quantidade produzida,
resultando em menores custos fixos mdios.
No caso das indstrias de transporte, as economias de densidade
podem se manifestar no apenas atravs do aumento do nmero de
consumidores, mas atravs da modificao da morfologia das redes de
transporte, de forma a melhor adequar os fluxos disponibilidade
da capacidade de transporte.
Externalidades em rede: a abordagem
tradicional
Microeconomia tradicional: referenciada a situaes nas quais as
escolhas individuais de determinados agentes definidas a partir
das respectivas funes-utilidade - so afetadas pelo conjunto
das escolhas dos demais agentes relativas a determinado bem ou
fator.
A nfase recai, portanto, nos impactos que o conjunto de escolhas
realizadas no mbito de determinado mercado gera sobre a funo
utilidade dos agentes individuais (produtores e consumidores).
Katz e Shapiro (1985), there are many products for which the utility
that a user derives from consumption of the good increases with the
number of the other agents consuming the good. ...The utility that a
given user derives from a good depends upon the number of the
other users who are in the same network.
Presena de externalidades em rede estaria correlacionada tanto
interdependncia entre as escolhas individuais, como
correlao existente entre a utilidade proporcionada por
determinado bem ou fator e a quantidade do mesmo vendida no
mercado (Economides, 1995).
Expanso coordenada da demanda em funo de externalidades
em rede est geralmente associada a princpios de
compatibilidade entre produtos ou sistemas.
Externalidades em rede: a abordagem
tradicional
Supondo que a "compatibilidade entre os diversos
produtos gera externalidades que podem ser
incorporadas, de forma independente, funo
utilidade dos consumidores, possvel definir uma
funo utilidade do tipo:
U = f (C
1
, C
2
, C
A
), onde C
1
, C
2
, C
A
so expressos em
forma logartimica a partir do seguinte sistema:
U = A C
1
C
2
A = f(C
A
)
de tal modo que:
ln U = ln C
1
+ lnC
2
+ lnC
A
Cada adio de C
A
- o estoque agregado de produtos
compatveis existentes no interior do sistema -
representa um incremento da "compatibilidade", que
conduz a uma ampliao subseqente da curva de
demanda de C
1
.
Externalidades em rede: a abordagem
tradicional
A questo relativa aos benefcios da compatibilidade tcnica discutida
por Berg (1989), a partir da hiptese de um modelo clssico de Duoplio.
Duas firmas produzem bens parcialmente substitutos entre si (y1 e y2). A
minimizao do custo associado implementao de padres tcnicos
depende do nvel de produto, Ti* (yi). Supe-se tambm um custo marginal
de produo crescente e no-independente de Ti. Pelo lado da demanda,
supe-se que a incompatibilidade tcnica afeta as avaliaes do produto
pelos consumidores.
Considerando uma situao hipottica semelhante retratada no modelo
de Nash-Cournot, os produtores tero incentivos para selecionar
padres (T1 e T2) idnticos desde que ambos se beneficiem de uma
maior demanda associada a produtos perfeitamente compatveis.
Uma vez que os lucros de cada firma dependem dos produtos e padres
tcnicos de ambas as firmas, o grau de equilbrio da compatibilidade
afetado tanto por caractersticas especficas das estruturas de custo e
demanda, como pelas hipteses comportamentais relativas ao grau de
competio-cooperao entre os agentes no tocante realizao de
adaptaes em produtos e padres ao longo do tempo.
A definio de padres tcnicos compatveis cria externalidades positivas:
se a firma 1 selecionar um padro prximo ao da firma 2, possvel que
ambas as firmas se defrontem com uma expanso da demanda que afeta
positivamente a rentabilidade das mesmas.
Network Externalities Distinguished from
Economies of Scale
Scale economies arise when a producers per-
unit costs fall as output increases.
In contrast, network externalities arise when a
consumers benefit grows as total consumption
increases.
Scale economies and network externalities need
not go together; it is possible to have one
without the other.
Network Externalities Distinguished from Lock-
In Effects
Lock-in effects arise when consumers find it more economically
rational to stick with an existing product/service rather than to
switch to a competing one.
Network externalities can create lock-in by making the alternative
provider less attractive in terms of the benefit it will provide to the
consumer. Even if offered payment to switch, a consumer might
decline because of the network benefit she would lose.
Regulation can require firms to share their network externality (through
an interconnection or interoperability mandate).
But not all lock-in arises from network externalities; lock-in can
occur even when the competing product/service is more attractive if
the switching costs of moving to the better service are too
high. Service termination penalties, incompatibility with
already-purchased complementary goods, and sunk costs are
factors that might keep consumers from switching even to better
choices.
Regulation can limit switching costs by mandating cooperation between
rivals (e.g., number portability).
The Vertical Dimension: Network Effects and
Complementary Goods
The benefit of a network or software platform may derive from the
availability of complementary products. My operating system is more
valuable to me the more applications programs I can run on it. My
DVD player is more valuable to me the more movies there are on
DVD. As more other consumers by my operating system or DVD
players, the more such complementary products get made, making
the operating system or DVD player more valuable to me. This is
sometimes called an indirect network effect or feedback effect.
Whether or not there is a network monopoly will depend on rivals
access not to the underlying platform or network and its customers,
but to the complementary products.
Different network (or platform) providers will adopt different strategies
toward complementors (or application providers).
ModularityPalm, Microsoft Xbox, Linux, Comcast DVR
Vertical IntegrationMicrosoft (OS and browser), Comcast broadband
and VoIP
Consequences for Market Performance and
Firm Strategy
Effects on market structure: When the externality cannot be shared
among firms, a network industry can tip toward monopoly. When
AT&T refused in the early 20
th
century to interconnect with rivals, it quickly
gained dominance because of its larger subscriber base, which in turn
attracted more new subscribers because of the larger network benefit, thus
creating a cycle that reinforced itself and led to monopoly.
Implications for competitive strategy: Early acquisition of customers is
critical in the race to capture a network market. The first firm to gain a
decisive lead will become dominant, at least for some period of time. Low
prices, giveaways and other promotions are likely to be common.
Dynamic effects on innovation and competition: Network effects will
drive firms to innovate and compete over time for the market. Just
because one firm becomes dominant does not mean all competitors melt
away. Some rivals will try to innovate ahead of the incumbent, initiating a
new round of competition that may lead to a new firms becoming dominant.
Competition in R&D will likely be an important strategy in network markets.
At a point in time one might observe several firms competing in R&D even if
at that same time there is little competition in the product market.
Non-market strategies: Legal and political means of obtaining access
to the incumbents networks are likely to be attempted.
Complementarity, compatibility and standards:
- Computers are useful only with monitors, printers, software etc. = complements
- To work together, complements must be compatible: CDs and CD players, trains and
tracks etc.
- To be compatible, products must work on the same standard. This creates a problem of
coordination.
Externalidades em rede: princpios de
compatibilidade e padres
Standards and Compatibility
Many products are "standardized" or
"compatible" even though there are many
technologically feasible alternatives:
can get many channels on the same TV set
35mm cameras can use film from many
manufacturers
any CD can be played on any CD player
all CD players work with all amplifiers
almost all web pages display OK in any web
browser
Compatibility takes many forms
Forms
Physical: objects are designed to fit together e.g.
cameras and lenses
inter-communication: devices can talk to each
other e.g. ATM networks
convention: coordination: time zones, currency
combinations of these: e.g. software
Pervasive phenomenon:
Demand side benefits
Supply side benefits
Interaction between the two
Compatibility Benefits for Users
Lower prices due to increased competition
among producers of compatible products
Compatibility prevents hold up by a monopoly
supplier once customers are locked in: hence
second-sourcing
Network externalities: the more users of
compatible equipment the better for some
technologies e.g. telephones
Benefits from experience (learning by using)
or investment in costs of adoption can be carried
over to compatible products
Compatibility Benefits for Users
Growth of complementary products or markets
(spare parts, software, servicing) which are more
easily available and lower cost when the size of
the compatible market increases
Standardization makes second-hand markets
thicker
Reduced uncertainty: other consumers have
tested the technology
Mix and Match benefits: interoperability of
products may mean increased variety available
Modular innovation in inter-connected
components improves overall performance
Externalidades de Demanda e Efeito Clubes
Pelo lado da demanda, as externalidades de rede (de consumo)
ocorrem quando o valor de um bem depende do nmero de
pessoas que o utilizam (Varian, 1999). Ex: efeito clube.
Um exemplo clssico de efeito clube direto o impacto que a
adeso de um novo consumidor a determinado sistema de
servios telefnicos causa sobre a utilidade deste servio para os
demais consumidores. Quanto maior o nmero de aderentes do
servio, maior sua utilidade.
Efeito clube indireto ocorre por associaes indiretas entre
as funes demanda de determinados tipos de produtos.
Quanto maior nmero de consumidores de um servio (por
exemplo, servio de eletricidade), maior ser a oferta de produtos
complementares (eletrodomsticos), e maior a propenso do
consumidor a pagar pelo servio prestado.
Bandwagon Demand
An equilibrium is an economic state
(situation) that has no tendency to change.
A disequilibrium is an economic state that
does tend to change.
The bandwagon model posits that the
benefits of consumption expand as the
number of consumers (the size of a
network) increases.
Bandwagon Demand
The bandwagon demand model is based
on the existence of network externalities or
economies of scale in demand.
For example, eBay, emailing, telephone
services exhibit network externalities.
In terms of bandwagon theory a
consumers demand depends on the
number of users with whom the consumer
has some community of interest.
Bandwagon Demand
A user set is an equilibrium user set if and
only if
No consumer who has chosen to consume
the service would be better off not to consume
it
No consumer who has chosen not to
consume the service would be better off
consuming it.
An equilibrium user set maintains the
same number of users. The demand for
each user and nonuser has no tendency to
change.
Bandwagon Demand
The initial user set consists of all
individuals purchasing a good or a service,
even if no others purchase it.
The initial user set which can be empty
depends on
The quality of the product
The effectiveness of promotional and
marketing campaign
The supply of complementary products
Bandwagon Demand
The market demand curve captures the
maximum price that consumers are willing
to pay (reservation price) for any given
quantity of the good or service offered.
In the absence of network externalities the
market demand curve is downward
sloping.
In the presence of network externalities
the demand curve can have an inverted U-
shape.
Bandwagon Demand
Traditional inverse demand curve in which
the price is modeled as a function of
quantity:
P
r
i
c
e
Quantity
p
Q
Bandwagon Demand
The typical shape of a bandwagon
demand
Price
0
U
S
Quantity
Bandwagon Demand
The curve indicates the reservation price
of a marginal user given the user set
associated with the quantity consumed.
As more users join, bandwagon benefits
increase the value of the service for each
additional user.
This generates an upward sloping portion
in the demand curve and results in
unstable and stable equilibria.
Bandwagon Demand
Point U is associated with an unstable
equilibrium.
Point S is associated with a stable
equilibrium
The region US is characterized by
hypergrowth in sales and market
expansion as more users join the network.
Compatibility Benefits for
Producers
Greatly increased demand for the product which
means:
sales growth
advantages to cost leaders
may be well worthwhile to move from a large share
of a small market to a smaller share of a large
market if you have scale economies in production
lower input prices
larger market for materials & components, or
skilled labor may be more competitive, or upstream
firms may have economies of scale
Captive market: customers tend to become locked
in to a particular standard: higher margins
Compatibility Benefits for
Producers
Improvements in production technology:
rationalization, simplification, increased quality
etc.
Resolution of uncertainty: standards provide
direction for R&D efforts
Payoffs to incremental innovators who can
improve product performance while remaining
within the standard
Bringing About Standardization
Its often difficult to institute standards, since
Standards are a public good, once published
they are available to all comers, but somebody
has to be willing to bear the setup cost
Standards are often brought about only by
solving a coordination problem: very difficult to
get producers, buyers, and suppliers of an
industry to move in concert
Installed Base, Excess Inertia,
and Excess Momentum
Installed base of users of a technology which
has network externalities (i.e. users care about
how many other users there are) drives two
effects:
Excess Inertia
Inefficient delay in adopting a new technology
Excess Momentum
Inefficient haste in adopting a new technology
Excess Inertia
If early adopters of a new technology have to
bear a disproportionate burden of the transient
costs of moving to a new incompatible system,
no-one is willing to take the first steps
Implication: even a much improved technology
may be very slow to take hold
Zoological analogy: Penguins on an ice floe, with a
predator waiting in the water
Excess momentum: inefficient
adoption of a new technology
Suppose a new technology appears, and there
is perceived to be a first-mover advantage:
Some users will switch immediately. This
penalizes those who do not switch since their
network has shrunk.
Fear of being stranded or orphaned generates a
bandwagon effect, whereby all firms rapidly
adopt a new technology even if it is inferior.
Systems Competition and
Industry Standards
The Excess Inertia and Excess Momentum cases apply to
market settings where the network gains from compatibility
and connectedness are large
both firms want to adopt a common technology
Difficulty in agreeing which technology both should use
Sometimes firms will not have a preference to make their
technology the common standard or not to have a common
technology at all
Different technologies loses compatibility
But different technologies differentiates each product
and softens price competition, e.g., PlayStation 2 vs.
Gamecube vs. X-Box
Installed Base and Barriers to
Entry
Size of the installed base of users of a
proprietary technology with network externalities
can present a significant barrier to entry by new
firms
Network externalities impose switching costs upon
customers of incumbent firm(s)
very difficult for entrants to persuade customers to
adopt a superior product if it has few current users
Therefore strong incentive for early movers in an
industry to try to build a large installed base...
Standards
Agreed standards may lead to a bigger
overall market
Standards expand network externalities and
reduce uncertainty
Standards tend to benefit consumers - there
will be a wider choice, greater price
competition and reduced lock-in
Standards - some comments
from Shapiro (2002) - p28 ff
To be meaningful, standards must be adopted widely,
if not universally
..standards typically benefit consumers by ensuring
compatibility... but there is sometimes .. a concern
that the standard-setting process [could] be
manipulated or structured to favour one firm or a group
of firms..
standard setting bodies usually prohibit discussions of
the pricing of the resulting standards
a single firm controlling a standard would have
significant market power - firms often try to hijack a
standard making it proprietary rather than open
Padres tecnolgicos e Indstrias de Rede
Venda de produtos ou servios atravs da mobilizao de
tecnologias que devem funcionar de forma coordenada e
complementar.
Compatibilidade requer um determinado grau de padronizao das
tecnologias utilizadas.
Padronizao cria irreversibilidades tecnolgicas, podendo
inclusive resultar em problemas de escolhas tecnolgicas sub-timas
(Arthur, 1989).
Necessidade de coordenao dos investimentos realizados,
incluindo ajustes na estrutura de propriedade de tecnologias e
componentes.
Coordenao das decises de consumo dos agentes.
Necessidade de compatibilizao entre o hardware e o software,
gerando efeitos sobre as decises de consumo (positive feedback
effects).
Adequao de requisitos de compatibilidade nas etapas anteriores
produo (P&D, projeto, testes, etc.)
Presena de mecanismos de auto-reforo (self-reinforcing
mechanisms), resultantes da adoo inicial de determinada
tecnologia, originam uma trajetria cumulativa que, por sua vez, gera
uma situao de lock-in.
Externalidades de Rede e Padres Tcnicos
Arquitetura tcnica de interconexo de indstrias
de rede: estratificao em trs nveis:
1) infra-estrutura material (ou fsica) que possibilita
a ligao entre os vrios ns (hardware);
2) info-estrutura que permite otimizar a utilizao
daquela infra-estrutura atravs de um sistema de
operao eficaz (software);
3) conjunto de servios utilizados a partir da
operao do sistema, diferenciados em termos de
qualidade e preos e que se adaptam a diferentes
segmentos de usurios ou clientela (aplicativos).
Processes for Arriving at
Standards
Internal decisions e.g. IBM in mainframe
computing.
Mutual agreement among producers
First mover
Government decisions
Power of large customers e.g. GM and MAP
robot control language
Market dynamics
Markets where standardization is
important have unusual dynamics:
Tipping i.e. standardization and lock-in
Accelerated or delayed adoption of new
technologies
Standardization, Positive
Feedback, Lock-in
Effects on both demand and supply sides generate
positive feedback: the more users have adopted a
standard, the more likely other users are to adopt it too
Often see explosive growth as one product standard
quickly dominates a market: tipping
Huge payoffs if the market adopts your standard!
BUT outcomes are:
difficult to predict
discontinuous
very difficult to reverse: lock-in
Concorrncia entre padres - principais
aspectos
atrao dos consumidores em relao a determinada
tecnologia, gerando ampliao da sua base instalada
(Katz e Shapiro, 1986);
anlise de determinados custos de mutao
(switching costs);
identificao dos impactos gerados pelo reforo da
compatibilidade entre componentes de um bem
estruturado na forma de determinado sistema (Katz e
Shapiro, 1985 e 1986);
discusso sobre a importncia da presena de um
adaptador (Farrell e Saloner, 1992) que conecte duas
tecnologias distintas;
arbitragem entre padronizao e variedade na
identificao do nvel de compatibilidade que se mostra
mais satisfatrio.
Estratgias de atrao em indstrias de rede
Objetivo: soluo de problema de credibilidade => compromisso dos
produtores em termos do repasse de eventuais benefcios
proporcionados pela estruturao da rede.
Alternativas (Katz e Shapiro, 1994):
a montagem de sistemas relativamente abertos em termos da
estrutura de hardware-software;
substituio de estratgias de vendas por estratgias de aluguel de
pacotes integrados de hardware-software, com garantia de posterior
up-grade;
a montagem de alianas e contratos de longo prazo entre
provedores dos sistemas e seus consumidores;
anncio e realizao de sunk-investments por parte dos
produtores,, explicitando um compromisso em termos da continuidade
do desenvolvimento de novas solues;
a adoo de preos de penetrao indutores da expanso da rede;
reforo mercadolgico da reputao como ativo, de modo a
solidificar os laos entre provedor e consumidores interligados rede e
a garantir incentivos sua expanso..
Standards wars
Agreement is not always reached on
standards leading to standards wars
Possible outcomes
truce (e.g. modems)
duopoly (video games)
winner takes all (VCRs)
Externalidades de Rede - Desdobramentos Analticos
Rede adquire maior valor e importncia quanto maior for o nmero
de usurios a ela interligados.
Presena de efeito clube implica que a utilidade de servios se eleva
quanto maior o nmero de consumidores que j aderiram a estes
servios => feedback positivo vinculado presena de economias
de escala pelo lado da demanda (Shapiro e Varian, 1999).
Conexo de um usurio valorizada mais que proporcionalmente
pelos consumidores efetivos e potenciais, gerando um processo de
retroalimentao que refora aquelas externalidades e conduz
ampliao da prpria rede.
Como os custos fixos da rede so maiores no perodo inicial, existe
uma contradio entre o que os consumidores esto dispostos a
pagar e o custo marginal de produo neste perodo (problemas de
retro-aes entre oferta e demanda).
Necessidade de desenvolvimento de uma estratgia de difuso que
leve em conta a evoluo da utilidade destes servios, gerando
retroao positiva.
Necessidade de coordenao e investimentos em servios que
operam como bens pblicos, ou seja, no podem ser imputados a
um produtor especfico (papel do Estado).
Important Ideas
Positive feedback: success generates success
and vice versa
Network effects / network externalities: the value
of each user depends on the number of other
users.
Returns to scale / economies of scale
Supply side
Demand side
Positive Feedback
Positive feedback Typical of information industry
(network industry): Strong get stronger, weak get weaker
Negative feedback: stabilizing typical of traditional
oligopoly markets
Positive feedback makes a market tippy: Winner take
all markets
Examples: VHS v. Beta, Wintel (Windows+Intel) v. Apple
< 2007 but the story continues! Apples resurrection!
Negative feedback!!! Why? Innovation, technological evolution
contestable markets.>
Nintendo vs. Sony
Sources of Positive Feedback
[1/2]
Economies of scale = a specie of positive
feedback
Traditionally: supply side economies of scale
Declining average cost
Marginal cost less than average cost
Example: car industry
At a certain point they turn into constant and then
negative returns to scale negative feedback
oligopoly
Sources of Positive Feedback [2/2]
Demand side economies of scale
Typical of information goods consumers
value Microsoft Windows because it is the
most widespread network effects
Examples: Sony v. Beta, Word v.
Wordperfect/Wordstar, Lotus 1-2-3 v. VisiCalc
Importance of expectations .. / ..
Switching costs and lock-in:
Switching from Windows to Linux is costly for a consumer
Switching from a bank account to another has a cost (closing an account and opening
another account)
In these case users are locked-in
Lock-in is relative, not absolute different degrees of lock-in depend on switching costs.
Types of locks-in:
Contracts
Training and learning
Data conversion
Search costs
Loyalty costs
Effects:
Market power
Competition between sellers to lock
buyers in
Installed base of consumers: those who are locked in a
technology
Lock-In and Switching Costs
Network effects lead to substantial collective switching
costs (= switching costs of all users)
Even worse than individual lock-in
Due to coordination costs: hard to convince many
persons to switch to another technology
Nobody wants to be first!
Example: QWERTY, initially invented to slow down
typewriting to avoid jamming. More inefficient than
Dvoraks 1932 AOEUIDHTNS
Systems and Standards
Competition
Competition between networks does not always lead to one
survivor
Each network may have its own system
Compatibility issues
What is gained and lost when consumers cannot use
their brand of the product on other systems?
Competition to be the Industry Standard
Firms may compete to have their system adopted as
the industry standard
What are the implications of standards competition?
Tactics in standards wars
pre-emption - get positive feedback to
work for you and against your rival
penetration pricing - build the customer
base
expectations management pre-
announcement of products
alliances- convince customers you will be
the winner
Network strategies -
openness versus control
Firms introducing new products and technologies
face a fundamental trade off between performance
and compatibility
The evolutionary strategy involves a high degree of
backward compatibility but limited performance
improvement
The revolutionary strategy involves little or no
compatibility with existing products and requires
compelling performance
Key assets in network
markets
control over installed base of customers
intellectual property rights
ability to innovate
first-mover advantage
cost advantages in manufacturing
strength in complements
reputation and brand name
Winning Standards Wars
When compatibility matters to customers, how
can a firm make its technology the standard?
Evidence from past standards wars suggests:
technological superiority and/or lower prices are no
guarantee of success
positive feedback can rapidly amplify small initial
gains
standards-setting bodies are no substitute for market
forces
How to Lose a Standards
Contest
Focus on the product, not on sources of value to customers
Use a conservative approach to introduce the product
test market extensively
"skim" the market with high initial prices to fund further development
and marketing
Expect to win back market share from competitors by
offering superior performance, quality, or price/performance
ratios
We believe that consumers will come back to Betamax when they
realize that they can get better performance at lower prices.
Akio Morita, 1986
Rely on public standards organizations or industry
associations to set a standard
How to Win a Standards
Contest
Move fast
Understand sources of value for users
Take steps to address the needs and concerns
of customers beyond product performance
Recognize the role of expectations
Credibility and commitment
Move Fast: Typically there is a very small
window of opportunity exists between the point
at which a new technology achieves a minimum
level of acceptance, and the point at which the
market tips to a standard
Understand sources of value for
users
What are primary concerns of potential
customers?
price/performance
continuity of supply and hold-up
switching costs
availability of parts/servicing
availability of complementary products or
services
network externalities: the number of other
users
compatibility with current/previous technology
Address customer needs
beyond product performance
License the technology freely: often, the more
competitors the better
Support suppliers of complementary products
training programs
technical support
subsidies
joint marketing
if necessary integrate into production of complementary
goods
Offer inducements for early adopters to
compensate them for switching costs
low, low pricing
technical assistance with conversion
guarantees of future preferential treatment
Identify and court early adopters
You have to convince two groups to adopt your
technology:
customers
suppliers of complementary products
Within each group, some will be
less committed to the current standard
less risk-averse
less concerned about the size of the network
It is imperative that you find and sign up these
early adopters before your competitors do!
Role of expectations
Early in the contest between competing
standards, decisions to adopt will be based
largely on expectations about who will be the
ultimate winner
Expectations can be manipulated to some extent
by marketing activity:
hype your product; don't worry too much about
exaggerating performance: if you win, you have a
captive market who can wait for an upgrade
keep a public tally of adoption decisions; don't err on
the side of caution: If you win, your estimates will be
borne out
foster Fear, Uncertainty and Doubt: try to instill
uncertainty about the viability of competing
technologies
form alliances, sponsor user groups
Credibility and Commitment
Potential customers and potential producers of
complementary products are (naturally) very
skeptical about efforts to manipulate their
expectations.
Credibility and Commitment are the key:
Credibility is not just a question of reputation or track
record: you must put together a convincing package of
desirable product characteristics
production capability
financing
availability of complementary products
after sales service and support
signed-up major customers
signed-up major co-producers
Commitment
Commitment may require that you bet the farm:
commit to an "open" standard by publishing the
specs
make large sunk investments
cut your ties to the previous standard
put your reputation on the line
Product Pre-announcements:
Vaporware
Customer's concerns about compatibility can be
exploited by incumbent firms to discourage entry or
damage new entrants
If the incumbents technology has network effects,
then current users will be penalized if they switch to
a new incompatible technology
If the incumbents technology is proprietary, entrants
are locked out and have to build their own standard
predatory pre-announcements of future products
may deter adoption of the entrant's technology,
preventing it from ever reaching a critical mass of
users
Pre-announcements and
Installed Base
Effectiveness of pre-announcements in deterring
entry depends on:
importance of network effects
size of the installed base relative to market
potential
existing customers are unlikely to switch if the
incumbent promises improved performance while
retaining compatibility with the existing standard
BUT new customers contemplating a purchase
might join the entrants standard, if the incumbent's
installed base (i.e. network size) is small
Alliances
Credibility of a proposed standard can be
enhanced by participants forming public
alliances
But not easy, difficulties include:
competitive alliance formation: efforts by competing
groups to sign up co-producers and vendors of
complementary products may waste time and effort
and confuse customers
different incentives of alliance members: usually they
are rivals in the market
coordination problems in any committee
Example: Unix Wars: the Open Software Foundation
vs. AT&T/Unix International
Strategy Issues in Standards
Markets
Open v. closed?
Making money from open standards: lessons
from Open Source business models
Layered standards & co-ordination between
them
Flexibility of the standard: how much room for
differentiation?
Gateways: converters, emulators, translators
Critrios de Reconhecimento de Indstrias de Rede
presena de efeitos de clube, vinculados a
externalidades de demanda: reflexo da maneira como
padres de interconexo so incorporados funo
utilidade dos consumidores, bem como da disponibilidade
e variedade dos servios complementares disponveis;
sinergias na produo de bens ou servios subjacente
operao da rede, sejam decorrentes das economias
de escala na ampliao da sua infra-estrutura, sejam
vinculadas a economias de escopo (ou variedade)
decorrentes da repartio de custos variveis entre os
diferentes servios oferecidos;
existncia de subvenes cruzadas entre diversos
tipos de bens ou servios oferecidos e entre diferentes
tipos de usurios da rede, o que implica a montagem de
um sistema de tarifas que, confrontada com os custos,
garanta a sustentabilidade global da rede;
Critrios de Reconhecimento de Indstrias de Rede
inexistncia de uma demarcao rgida entre monoplio
ou concorrncia como estrutura de mercado mais eficiente
para a operao de indstrias de rede.
Convivncia entre prticas de competio e cooperao
entre os agentes, no como forma de conluio ou preveno
entrada, e sim como meio para obteno de diversos tipos
de sinergia fundamentais para a sustentabilidade da rede;
existncia de uma forte regulao que direciona-se , por um
lado, para o monitoramento de posies dominantes nas
atividades de infra-estrutura e, por outro lado, para a
organizao da concorrncia na proviso de bens e servios
finais.
Regulao tem como objetivos promover uma interconexo
eficaz da infra-estrutura e garantir uma universalizao
dos servios prestados atravs da indstria de rede.
Market failures:
- Deadweight loss
- Externalities
Government intervention? Not necessarily
Example: choice of a standard
- Consumers may have already adopted another standard
- The standard cannot be the best technology
Network Externalities Pose Regulatory
Challenges
Network market dominance is not necessarily a result of
anticompetitive strategies, but can be consumer-driven.
Monopoly is not, as in conventional markets, clearly bad for
consumers. They receive a large benefit from the network
externality. If that externality cannot be had absent the monopoly,
rules designed to end the monopoly may harm consumers.
Regulation may therefore have to make trade-offs between
conventional price/output objectives and network externalities.
One policy approach is to promote and preserve network
externalities for consumers, but to do so at the lowest possible price
to consumers by simultaneously introducing competition where
possible.
Interconnection and interoperability become key policy
instruments in managing this policy objective; more important
than retail price regulation. Rate regulation my deter innovation and
dynamic competition by reducing the payoff for competing R&D
efforts. Interconnection and interoperability, on the other hand, try to
preserve competition among firms that collectively provide
consumers with a network benefit.
Natural monopoly?
The standard view until the 1980s was that when average costs are decreasing there is a natural monopoly
and government must license only one company in each region or state and control prices.
Shortcomings:
- Bad quality of services
- Regulators failed to control prices because monopoly companies boosted production costs or were
inefficient high prices
Deregulation (airlines, railways) and break-up of monopolies (AT&T) introduction of competition
increase of welfare.
Access pricing: the efficient large-scale use of existing infrastructures is preserved, while competing companies
use it and pay access charges to the firm that owns and maintains the infrastructure.
Considerations when Intervening in an
Evolving Network Market
As rival firms compete to provide a network service, the ideal is to have
rapid deployment, continued competition, and the ability of customers of all
providers to share a common network externality. Interconnection is the way
to do this. Because subscribers to one mobile phone carrier can call
subscribers to all other mobile phone carriers, no carrier has a monopoly on
the network externality regardless of market share. Despite some costs,
there is little debate over basic interconnection.
But interconnection can be taken much further than basic termination of
calls originating on a rival network. For example, one carrier might introduce
proprietary features or calling plans that could lead the market to tip. Should
a firm have to give rivals access to novel technology? Should carriers be
barred from implementing plans that benefit uniquely their own subscribers?
Should carriers have to grant wholesale network access to rivals that lack
necessary facilities? Over these questions there is far more debate,
because the tradeoffs for technological innovation and even for
conventional price competition will be much greater.
Key lesson: Interconnection is not unambiguously good, and the fact that it
is beneficial in its basic form does not mean it should be taken to greater
lengths in the name of access and competitive neutrality.
Systems Competition and
Industry Standards
Public policy in the presence of strong networkk
externalities is complicated
Low introductory pricing and bundling of complements
may look like anticompetitive
practices but are really just necessary to survive
Decreeing a common standard forces government
to choose the winning standard. Governments are
not necessarily good at picking winners
Should governments try to coordinate technology
choices or, instead, let a thousand flowers bloom
Intervention when the Market has
Tipped to Network Monopoly
If the market does tip and only one firm delivers the network
externality, the question is whether monopoly effects can be
weakened without diminishing the network benefit for consumers,
and without weakening dynamic competition.
Easy case is when basic interconnection will do the trick, as it might
have in 1910 when AT&T began to regain its monopoly. But this
often will not be enough.
3 More Aggressive Remedies: In many if not most cases more
intense intervention will be needed to stimulate competition in the
short run. Possibilities, depending on context, are (1) unbundling or
wholesale access to incumbents facilities, (2) divestiture of the
monopoly into separate firms, and (3) licensing of proprietary
interfaces to potentially competing platforms. Each of these involves
potentially important economic tradeoffs.
(continued)
Wholesale access/unbundling: Can have negative effects on investment
and innovation. To avoid such harm, network access pricing must be
correct, which is very difficult.
Divestiture: Could waste economies of scale and, if divested entities evolve
in ways not fully compatible with each other, will diminish network
externalities (potential Microsoft divestiture problem).
Licensing of interfaces: Could diminish innovation incentives on a
forward-looking basis because benefits would have to be shared. Such
licensing would have to be carefully calibrated both as to timing and price.
But often a useful solution, increasingly adopted to remedy merger
concerns.
Lesson: Introducing competition into network markets can be costly and the
tradeoffs need to be considered carefully.
A Central Role for Antitrust
It is particularly important where network dominance has occurred to
make sure that dominance is not maintained by anticompetitive
strategies. Antitrust must play a big role in ensuring that a network
monopoly lasts no longer than justified on the competitive merits.
Antitrust will be particularly important where a regulated network
operator has an unregulated line of business that is complementary
to its regulated service. Example is a cable network that owns and
produces content and services that it sells to its internet access
subscribers. DOJ and FTC will play the primary role in evaluating
potential tying arrangements and vertical mergers that could give
rise to monopoly leveraging or monopoly maintenance allegations.
Hiqh Stakes institutional questioncan the FCC perform antitrust-
like function (ex post evaluation of dominant firm practices) and can
antitrust courts act effectively (both knowledgeable and quickly) in
new economy markets
Three Hard Questions
Intervention in evolving network market:
Should regulators intervene to ensure sustained
competition in an evolving network market
either vertical access (i.e., network neutrality) or
horizontal access (i.e., interoperability).
Remedies for a network monopoly: If a
network monopoly arises, should regulators try
to limit the duration of the monopoly or otherwise
constrain its behavior? And if so, when and
how?
How to judge impact of price discrimination
via vertical integration?