Network externalities in competitive markets

Abstract

Abstract In a competitive market, companies are subject to a large number forces from the external environment, and it is a success depends on upon numerous factors apart from the product features and quality. Network externalities include a group of such factors whereby the benefit accused to organization changes based on the size as well as the quality of the network it creates . this reports studying the nature and strength of these network externalities. With the help of some specific case study and based on this research makes recommendation two companies which exist in markets which are highly susceptible to Network externalities effects. the source research for this project where mainly secondary source which included reports, existing case studies, and news items on network externality effects. Apart from this, personal interviews with Mr. Sanjeev Bhikchandani, CEO of Naukri find Mr. Sudhir Bhargava, vice president (Finance) at Naukri were conducted and their inputs have been included as part of the Naukri case study, and in arriving at the project recommendations. literature review primary covers the study of the nature and types of network externalities and the role of standardization and sponsorship in network externalities. The theoretical model study includes the Metcalfe`s Law, Saffo`s year model and Everett Roger`s Model for the success of technological innovations. The literature review is followed by three case studies -Naukri, Jeevan Shanti and HD -DVD vs. Blu-Ray format war. The Naukri Jeevansathi models fall in online marketing space. However they preliminary differ in terms of their time of entry into the industry and the sponsorship at the time of entry. While Naukri enjoyed a large first mover advantage but had virtually no sponsorship when it made an entry Jeevan Shanti has been a late with Shaadi and Bharat's matrimony well entrenched in the online matrimony market. However, Jeevan Shanti did have the advantage of sponsorship at the time of entry. The similarities and contract in these two cases have been brought throught these two case studies along with and analysis of the various network effects in Play. HD DVD vs. Blu-Ray study study lies in the technology space and helps bring out the effects of standardization in network externalities. Also this is an extremely recent case and the future of this war is yet to be seen and can be debated upon. This case study includes an analysis of the strategies being followed by the two companies and the likelihood of a win lose game or the emergence of a common standard. The project recommendations highlight ways in which companies can capture externalities to their advantage through gaining the first mover advantage and maximizing infra-marginal utility. It also discusses the appropriate strategic companies should follow based on their sponsorship availability and the reaction to a possible clash of standards.