Grabber–holder dynamics and network effects in technology innovation

Abstract

Economists and marketing researchers have examined how network effects can have an impact on the adoption of technology and products, and how an intrinsic inferior product or technology may dominate the market. However, their studies have not explained how a producer could create network effect for a new product and how, after successfully creating the network effect for this product, the producer could lose it in a short period of time. While these studies provide insight into technology innovation after it happened, they fail to shed light on understanding many of the surprises that we experience in the process. The objective of this paper is to present a fundamental framework that helps us understand most of the surprising outcomes that we have seen in technology innovation processes, especially the winners and losers in an innovation process. The framework is built on a grabber–holder dynamic model that captures how all the intelligent agents involved in an innovation shape the forces that either induce a strong network effect or destroy a network effect that is already in place. The model can be used to explain many surprising events that have happened in technology innovation. In this paper, I apply the model to the Personal Computer innovation.