The Winner-take-all Phenomenon in Markets
where Network Externality is Ineffective
Hitoshi Yamamoto, Isamu Okada, Nobuchika Kobayashi, Toshizumi Ohta
hitoshi@rs.kagu.sut.ac.jp, okada@s.soka.ac.jp, nobu@ohta.is.uec.ac.jp, ohta@is.uec.ac.jp
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 new economies referred
to as "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 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. In our analysis, we
make a clear distinction between Winner-Take-All and Lock-In. That is, Lock-In
is one of the factors which produces Winner-Take-All. The term 'Lock-in'
is used to refer to a situation in which the cost of converting from specific
technologies or goods to other factors is so high as to be nearly impossible.
Lock-In exists on individual, organization, and market bases. Winner-Take-All
is a phenomenon
under which the Lock-In phenomenon advances, involving consumers who are
still "locked in". We define the factors which produce the Winner-Take-All
and Lock-In phenomena as "Winner-Take-All" and "Lock-In" drivers.Various
factors have contributed to the rise of the "Winner-Take-All" phenomenon.
One typical such factor is network externality. A number of other factors
can also be considered.. We researched the Winner-Take-All phenomenon in
several markets, including the mobile telephone, fast-food and music markets,
and observed the phenomenon in all of them. Applying traditional economic
laws enabled us to understand the mobile phone and fast foods markets, but
not the music market. Consequently, we need to develop a model that will
enable us to more clearly understand the
Winner-Take-All mechanism in markets where network externality is ineffective.
In developing such a model, we assume the existence of
"action rules" for individuals. Such rules are represented by two axes, i.e.,
a communication axis and an information seeking axis. We extracted these
rules in researching and simulating goods selection and communication among
individuals. Our objective in doing so was to determine what social phenomena
emerge when agents use such action rules in cases such as changing information
channels. We found that horizontal exchanges of information facilitate customization
of information, and were able to intuitively reason that such customization
of information increases social diversity. We then applied these action rules
to explore the reasons the Winner-Take-All phenomenon is generated.