Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : MSFT Internet Explorer vs. NSCP Navigator -- Ignore unavailable to you. Want to Upgrade?

To: Gerald R. Lampton who wrote (19707)	5/26/1998 2:23:00 AM
From: dumbmoney	Read Replies (1) \| Respond to of 24154

Isn't network effects literature as applied here basically saying that Microsoft is a natural monopoly? Network effects are certainly important. But the real clincher is economies of scale. Unlike manufacturered goods, there is no limit to the economies of scale - every additional copy sold reduces the effective production cost of all of them. A new market entrent starts out with a small market share, and hence uncompetitively high costs.

To: Gerald R. Lampton who wrote (19707)	5/26/1998 9:02:00 AM
From: Dermot Burke	Read Replies (2) \| Respond to of 24154

exchange2000.com This is an interesting view towards reparations/damages for Netscape.

To: Gerald R. Lampton who wrote (19707)	5/27/1998 10:44:00 AM
From: Thure Meyer	Read Replies (2) \| Respond to of 24154

"why network effects are a barrier to entry." I don't know what the literature agrees on, my own view is that switching costs are so large they constitute a de facto barrier. Imagine the overall cost of switching all spreadsheets to a new product world wide. And, I don't think its Stiglerian since "network effects" refer to the whole landscape and not any particular participant (thats why it is referred to as network externalities". This means, for example, that individual productive factors are not the ultimate determining factor, rather its the interlocking nature of the business. Its a recognition that any particular product also helps shape the landscape around it and cannot be viewed in isolation and once a system converges to an acceptable solutions its locked in by those same externalities. Having said that, I don't think network externalities are such a big concept. We see it all the time. The auto industry is heavily interlocked as well; highways come in a certain size, speed limits, pollution laws, machines for building cars, gas pumps, etc.. I.e, cars increase in value as we build more cars since then we build roads, etc. The canonical example for network externalities is the telephone. It increases in utility value as more and more people get telephones. On the other hand, I am not a big expert on this and am learning by doing. I started reading this stuff because of a project to analyze the underlying technostructure of financial transactions, in particular NASDAQ, NYSE in relationship to the new Optimark system. This led straight to considerations of network externalities because one of the immediate features of markets is that a certain liquidity threshold has to be overcome and then it becomes a self reinforcing system (i.e., network externalities kick in). "Isn't network effects literature as applied here basically saying that Microsoft is a natural monopoly?" I don't understand the difference between "natural monopoly" and monopoly well enough to comment. "But, to me, network effects sounds like a type of efficiency, and not the sort of thing that would permit a monopolist to reduce output or raise prices beyond what is most efficient for a particular market" I don't know what to say about this. There is some literature based on some very simple assumptions (like perfect consumer foresight, etc.) which points out that a monopoly has to compete with itself over time and therefore will end up charging close to competitive prices. I don't understand that conclusion since there is no way to measure what a competitive price would be. "What I would like to know is: how do network effects allow Microsoft to reduce output below, or raise prices above, competitive levels, or, if it is a "natural monopoly," the most efficient levels possible in its markets? And, if network effects don't allow Microsoft to do either of these things, how is government intervention going to improve things from an efficiency standpoint?" "If the purpose of antitrust intervention is to prevent Microsoft from using predatory tactics to preclude a new technology from supplanting or commoditizing Windows, how do we know that the new technology will lead to a more efficient market structure than that dominated by Microsoft?" Again, I don't know how anyone knows what "competitive levels" would be in the context of this monopoly, natural or otherwise. I think we are heading down the wrong road here. The government simply has to show that Microsoft is a monopoly. Also, I think the purpose of the antitrust intervention is a bit more context free than your statement above. Its not about a new technology supplanting Windows, rather MS using predatory tactics to deal with a threat to their monopoly. The Windows vs. Netscape conflict is a Microsoft PR problem. As to the question of more efficient market structure, DOJ is not charged with creating market structure. My own opinion is that we will get a more innovative, cheaper, higher quality, more supportable tool set once Microsoft is curbed. Thure