The Strategic Network and Competition: The Case of Microsoft vs. Netscape

By Rached Halloul

Despite many attempts to define the concept of network, its economic dimension remains controversial. Within the limits of relationships having a direct influence on innovation, this paper attempts to assess the network’s impact on competitive dynamics and technology development and diffusion. At first glance, that impact seems positive. However, when three types of competitive dynamics, namely intra-network, inter-networks, and extra-networks, are distinguished, the impact appears to be more controversial. The analysis of the Microsoft vs. Netscape case confirms that, in the presence of a dominant firm, networks create barriers to entry that restrain competition from new networks and force firms to join existing networks, which may increase the effective degree of concentration in the medium term and may impede the development and diffusion of innovations.


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