Network Effects, Software Provision, and Standardization

Abstract

In this paper we examine the software provision decision of software firms. The provision decision by software firms determines the value and hence the market share of competing hardware technologies. We show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization, with only one hardware technology supplied with software in equilibrium. We show that when consumers place a high value on software variety, there is a suboptimal amount of standardization by the market.