A Study On The Enterprises’ Technical Standard Innovation And The Competitive Stratgies From The Perspective Of Network Effect

Nowadays, the competition focusing on standards among enterprises is obviously being intensified. The standards exists a great influence on the producers’behavior in the markets. Especially, the growth of network industries not only motivates standardization, but also makes it necessary for the system of industrial development. Technical standards have a crucial impact on the enterprises’ survival and competition. Following the steps of knowledge economy, competition among enterprises focuses on standards, instead of prices or technologies competition. Therefore, the technical standards become competitive’strategic point’, and the ability of controlling technical standards is an important manifestation of the national industrial advantages. With the development of science and technology, technical standards upgrade faster and faster. This situation requires enterprises timely carry on standard innovation, and develop targeted competition strategies.The dissertation analyses the enterprises’ decision-making of technical standard innovation and their standards competition strategies, based on the theories about network effect, technological innovation, enterprise competition and standards diffusion. Using the research methods such as literature review, theory deduction, empirical analysis and simulation, the dissertation focuses on related issues including the technical standards’ manifestation of network effect, the relationship between technical standardization, technological innovation and market structure, the coexisting equilibrium of technical standards and innovation strategies on compatibility technologies, the competitive diffusion of standards, and the other strategies on subsidy, upgrading and standard alliance. The dissertation mainly draws the following conclusions.Firstly, the network effect is the main mechanism of technical standards competition. With the direct network effect, the key points of competition are establishing initial installed base as quickly as possible, in order to gain the advantage of leadership, and ’expectation administration’. With the indirect network effect, the key points of competition are holding and integrating the complementary technical standards, in order to promote the competitive ability of system products. With the two-sided network effect, the key points of competition are coordinating the two-sided users and solving the bottleneck problem. Under this condition, standards competition may become platforms competition. Technical standard innovation is actually standards-competition-oriented technological innovation with some uniqueness on the innovation subjects, the main attention during R&D activities, the impact mode on enterprise performance and the paths of technology evolution.Secondly, from the industrial perspective, technical standardization, technological innovation and market structure are mutually affected and interacted in the same market space. Increasing market concentration strengthens the market power of large firms, and gives them more incentives to make their own technologies to become the industry-level technical standards (for some industries, a high market share means a strong installed base). This effect depends on technical standards’ compatibility and openness. The emergence of technological innovations provides more choices for the establishment of technical standards in the market, but meanwhile, also produces greater uncertainty. The process of technology standardization helps the technological innovation to become standards, but perhaps reduces the technology diversity. Technological innovation may greatly affect the existing market structure. The commercialization of the R & D achievements held by large enterprises makes ’the strong stronger’, and the technological innovation launched by small enterprises may shake the status of the large enterprises.Thirdly, from the enterprises perspective, the consequence of technical standards competition depends on the user scales, the network effect coefficient and the degree of compatibility. With symmetrical network sizes, the equilibrium price and profit of a standard dominant enterprise positively change with their respective network effect coefficient, but negatively change with their opposite network effect coefficient. With asymmetrical network sizes, the equilibrium price and profit of a standard dominant enterprise positively change with both the own and opposite degree of compatibility, and also positively change with ’distaste cost’. For the strong standards, the improvement of their own network effect coefficient can raises prices and profits. However, for the weak standards, their own network effect coefficient can improve the equilibrium price and profit only on the condition that their degree of compatibility reach a certain level. Therefore the enterprises supplying weak standards should pay more attention on technical compatibility. In addition, the enterprises could establish stable and effective R&D system so as to reconcile different networks. The enterprises supplying strong standards enjoy the privileges of saving financial investment on compatibility which ought to be the top mission for the enterprises supplying weak standards.Fourthly, standards competition with network effect as the main mechanism commonly shows the competitive diffusion among multiple technological standards at a certain time. The dissertation holds that the role of network effect in technological standards diffusion depends on both installed base and technical characteristics, in other words, their relative numbers of adopters and their technical efficiency of connection. These two factors can take effects simultaneously and then significantly accelerate (or decelerate) the diffusion processes. Simulation results show that the changes in final market share is sensitive to the changes in technical parameters of the network, and may form a mutual ’stalemate’ diffusion situation in the competition.Fifthly, the more the initial installed base and subsidy of new technological standards, the higher the success rate and shorter the length of substitution period. And what’s more, because of saving time, the increase of initial installed base and subsidy level could save the total cost of the whole process, even though this increase might hike the cost in a single time. The enterprises promoting new standards could purposefully design the spatial distribution of their initial installed base, and apply "block strategy"-that is making their initial users be centrally deployed in geographically, technically, psychologically different regions-in order to not only take the great disadvantage of "superior force" in a given market area and prevent being surrounded by the old standard users, but also fully exert the new standards’ influence and coordinate between different blocks to increase the chances of successful substitution.Sixthly, in the presence of standards upgrade and multi-version, the prosperity of relevant fundamental products is beneficial to the standards diffusion. The higher the interconnecting efficiency and the environments of complementary products development, the faster the standards expand. From the perspective of technical standard life cycle, the installed base scale changes in a U-curvilinear way. The process of standards diffusion often goes through four stages:introduction stage, growth stage, mature stage and waning stage. Because of transit cost and locking-in effect, there is coexistence of multiple versions in a long term after a series of technical standard upgrades and updates. The distribution of installed base among different versions can directly affect the network effect. The higher degree of concentration, the faster diffusion of technical standards. That is why some enterprises adopt’one-way upgrade’or "mandatory upgrade" strategies in order to spur their users to advanced standardsSeventhly, establishing standards alliance is an important strategy for the enterprises to participate standards competition. The technical standard innovation launched by the core companies of standard alliances usually brings significant wealth effect on the other member companies, especially when they are introduced by multiple-products announcements. When member companies are faced with these technical standard innovations, their research and development abilities play a key role:the companies with high R&D intensity generally get high level of wealth effect. However, the companies’ R&D elasticity plays a negative moderating role in the process. Therefore, the decision-makers should carefully make a choice on the scale of R&D investment.The dissertation makes the following contributions. Firstly, on the basis of related theories including economics of networks and enterprise strategic management, the dissertation might expand the technological innovation theory. Using both normative research and empirical research, it makes an effort to bring technological innovation into the study on standards competition. Secondly, the dissertation introduces ’network effect gain’ into the diffusion equation to describe the role of network effect, and then discusses its property. Thirdly, the dissertation analyses the typical strategies of enterprises participating standards competition. By building cellular automata model which follows more complex but more realistic reshaping rules, it designs a simulation of new standards promoting process. The dissertation also discusses the influence of duration, degree of innovativeness and degree of installed base concentration on the diffusion of technical standards. That might be one of the few research attempts on this issue. The dissertation regards the technical standard innovation launched by the core enterprises of standard alliances as important event which could exert great influence on other member enterprises. And then, using event study, it analyses the abnormal returns due to these innovation activities. It might provide a theoretical framework for such research.