The Winner-take-all Phenomenon in Markets where Network Externality is Ineffective


Hitoshi YAMAMOTO, Isamu Okada, Nobuchika Kobayashi and Toshizumi Ohta


We consider the mechanism of the winner-take-all phenomenon in markets in which network externality does not work. The development of information networks has led to the appearance of a new economies, so-called "digital economies", in which a winner-take-all phenomenon is observed as a feature. This phenomenon can be explained in terms of network externality, lock-in, and path dependency. We give examples of markets in which this phenomenon is observed, including the OS market and the cellular-phone market. However, a similar winner-take-all phenomenon is also observed in markets in which the economic laws of a digital economy do not work. To date, no model explaining this phenomenon has been reported. Thus, to observe the features of this phenomenon, we develop a multi-agent model of communications and consumer behavior, and with it simulate the market phenomenon. We distinguish Winner-Take-All and Lock-In. Lock-In is in one of the factors which produce Winner-Take-All. When the cost for converting from specific technology or goods to others is high and virtually impossible, we call it Lock-In. Lock-In exists also on an individual, an organization, and a market. Winner-Take-All is the phenomenon that Lock-In advances, involving in other consumers with whom yet Locked-In. We define the factor which produces Winner-Take-All and Lock-In as Winner-Take-All driver and Lock-Ii driver. Winner-Take-All phenomenon has been generated by various factors. A typical factor is network externality. In addition, we can consider some factors. We researched Winner-Take-All in some markets, which were the mobile telephone market, the first foods market, and the music market. We observed Winner-Take-All phenomenon in all markets. We can understand the mobile phone and the first foods market by traditional economic laws. But, we can not understand Winner-Take-All in the music market by them. We need to develop a model to understand mechanism of Winner-Take-All where network externality is ineffective. In the model development, we assume that an "action rule" for individuals. This is represented by two axis which are communication axis and information seeking axis. We extracted these elements from research on goods selection and communication among individuals. The objective of this simulation is to determine what social phenomena emerge when agents use such action rules in cases such as changing information channels. Horizontal exchanges of information facilitate customization of information, and we can intuitively reason that customization of information increases social diversity. We apply action rules in exploring the reason that the winner-take-all phenomenon is generated.

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