Back to Vol. 39, No. 4, 2025
Vol. 39, No. 4, 2025

Disruptive technology opening and selection strategies for firms in markets with network externalities

Title

Disruptive technology opening and selection strategies for firms in markets with network externalities

Author

SUN Lianjia; LIN Jun; LU Xiaojun; XU Ting

Abstract

The world economy is transforming into a networked digital age, and many new ideas challenging our traditional way of thinking are emerging. One of the most significant effects of this is that many patent-holding firms in networked markets take the technological openness strategy to build a more complete trading network, rather than taking conservative measures to prevent the entry of competing firms. In recent years, more and more producers are opening their technologies in different ways. For example, Tesla improves the universality of its own technology by opening patents. However, disruptive technologies change the business landscape of networked markets by defining new dimensions of quality. Due to the multi-objective constraints of R&D,new disruptive technologies always improve new dimensional quality by sacrificing the quality of traditional dimensions. In this case, the dilemma of technology selection has made the traditional winner-take-all situation unstable. Enterprises not only need to open up patents in an appropriate network environment to increase profits, but also need to choose among competing technologies to maintain market leadership.Traditional one-dimensional models cannot explain the openness and choice of disruptive technologies in the context of network externalities. Based on the multidimensional vertical differentiation theory, this paper develops a competitive game model to analyze the optimal technology opening and selection strategies of firms under the influence of the strengths of network externalities and the degree of new technological innovation.This paper first analyzes the issue of technological choice in the face of traditional and disruptive technological competition when leading firms do not engage in technological openness. In a market with network externalities, companies have the opportunity to achieve a certain degree of market monopoly by using the advantageous technology. The study gives the conditions under which firms will choose disruptive technologies.In markets with network externalities, leading firms may license inferior technologies and encourage competitors to enter the market to increase network effects. Due to the disadvantages of new technologies in the early stage, leading companies will give priority to adopting the old technology, and turn to the new technology after its quality reaches a certain level. In the second part of this paper we analyze these two situations respectively. We derive the equilibrium results in a competitive situation and the effect of the intensity of network externalities on technological openness. We also studied the effect of parameters on the choice of disruptive technologies by the leading firm. The results of the analysis show that leading firms will tend to have competitors as price leaders and themselves as price followers during periods of technological openness, so that they can better utilize the impact of network effects in order to maximize profits. More importantly, we find that the conditions for leading players to choose disruptive technologies are more stringent in the competitive environment.At last, considering the strength of network externality and the degree of technological innovativeness, the optimal technology opening and selection strategies are analyzed. The validity of the analytical results are validated with numerical experiments. The strategies in different competitive environments are compared. The results show that under the joint influence of technological competition and network externalities, compared with the technology selection strategy when the technology is not open, the value increase of the competitor brought by new technology may be more than the leading firm. If technology opening strategy is adopted, firms should strategically adopt new technologies earlier to avoid competitive disadvantages in certain situations.In conclusion, based on the multidimensional vertical differentiation theory to establish a competitive game model, this study analyses the optimal technology opening and selection strategies of firms under the influence of different network externality intensities. It is found that: 1) The increase in network externality intensity promotes firms to spread new technologies by opening patents, but this is not necessarily beneficial for firms to maintain their competitive advantage. 2) After firms open their technologies, both competition from new entrants and the increase in network externality intensity will delay the selection of disruptive technologies by leading firms. 3) There exists a risky interval in which firms under a certain network externality intensity and technological differentiation may choose the wrong technology due to profit gains brought by the introduction of competitors. The conclusions of the study clarify the impact of technological competition and network externalities on firms′ technology opening and selection decisions, expand the research on technology licensing management under the influence of network effects. Through analyzing the advantages and disadvantages of the introduction of competitors under the network effects, this paper provides theoretical support for the optimization of relevant decisions by enterprise managers.

Keywords

Technological competition; Vertical differentiation; Game model; Network externality

Issue

Vol. 39, No. 4, 2025

References