A Study Of Lock-In Strategy Based On Network Externalities And Bandwagon Effects

Network economy is the derivation shape of traditional economy, also the economy development's latest stage. Network externalities and bandwagon effects are both the dominant characters of network economy, although they have different connotations and role mechanism, they make enterprises' competitions present new rules at contents and forms. Moreover, the difference between these two factors make the competitions in these manufacturers more diversified and intensely. This paper mainly discusses how the switching barriers, which are constructed by the switching cost, network externalities and bandwagon effects, influent the manufacturers' consumer lock-in policies and how to instruct manufacturers in the market with network externalities.Using the three-stage Hotelling model, the paper divides the transaction behaviors between manufacturers and consumers into three stages, constructs a model about manufacturers' consumer lock-in policies with network externalities. This paper also verifies the necessity to consider these three factors: switching cost, net externalities and bandwagon effects in the lock-in policies. This paper finds out that in the duopoly one-sided market, it needs more cautions for these products whose compatible coefficient is K, especially when they first enter this market. They should seriously think about the competition strategies such as marketing strategies and price strategies, and also have to consider the constraint relationship of them during the three stages.This paper instructs manufacturers how to make the corresponding strategies base on the three factors, and show them how to do in the market with network externalities. Also this paper analyses the development of Sony- Ericsson in China telephone market as an example, has further confirmed the rationality of Lock-in strategy.