March 7, 2017

Bandwagon Effects in High Technology Industries by Jeffrey H. Rohlfs

By Jeffrey H. Rohlfs

Economists use the time period "bandwagon impact" to explain the convenience a shopper enjoys because of others’ utilizing an analogous services or products. The historical past of videocassettes deals a notable instance of the ability of bandwagon results. initially there have been technical criteria for videocassettes within the usa: Beta and VHS. Beta used to be broadly seemed to have higher photo caliber, yet VHS might list longer tv courses. ultimately the choice of Beta cassettes shrank to 0, leaving shoppers no selection yet to get at the VHS bandwagon. the main profitable bandwagon, except phone provider, is the web. during this e-book Jeffrey Rohlfs indicates how the dynamics of bandwagons range from these of traditional services. they're tough to start and infrequently fail prior to getting less than means. A vintage instance of a advertising failure is the Picturephone, brought by way of the Bell approach within the early Nineteen Seventies. Rohlfs describes the fierce battles waged by means of opponents while new prone are brought, in addition to situations of early contract on a unmarried technical general, as with CDs and CD gamers. He additionally discusses the controversy between economists and coverage analysts over the benefits and downsides of getting governments set technical criteria. The case experiences contain fax machines, phones, CD gamers, VCRs, own pcs, tv, and the net.

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They also have a head start in moving down the learning curve to reduce costs and improve service quality. 5 The profits deriving from a first-mover advantage are, however, lower than the profits that a monopolist could earn in the same market. Competitive suppliers therefore have less incentive than a monopolist would to promote a bandwagon service. 6 The above results are analogous to some famous results of the economist Joseph Schumpeter. Schumpeter observed that in order to under- Bandwagon Supply 39 take risky ventures, a firm needs the prospect of some degree of market power—that is, the ability to earn a greater return on investment than a competitive firm could expect to earn.

Bandwagons: How They Work 15 These economies are internal supply-side scale economies, because they accrue to the firm that expands production and not to other firms. The savings in unit costs from internal supply-side scale economies are likely to be passed on, at least in part, to consumers. 2 As more fax machines are deployed, the consumer might be willing to pay $500 more for a machine (but does not have to). As output of the automobile model expands, the consumer may be able to purchase the automobile for $500 less (though he or she derives the same benefit from the automobile).

For any given price, actual (disequilibrium) demand tends to gravitate toward the inverse demand curve, which indicates the equilibrium at that price. That is, each of the equilibria is a stable equilibrium. 2 is an unstable equilibria. Demand has no tendency to gravitate toward that part of the inverse demand curve. On the contrary, if demand is to the left of the upward-sloping curve, it tends to contract toward zero, which is a stable equilibrium. 5 Thus, for any price, the upward-sloping part of the inverse demand curve can be considered the critical mass at that price.

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