-> DEF: improvement & generartion over time of new products & production techniques.

• Statically, perfect competition is the best situation: it maximize productivity (bringing down prices) and then welfare.

INVENTION: (technological) materialization of an intuition which can be engendered by scientific knowledge. Might be exogenous and largely random in nature and can not be influenced by market signals. Can be a process of inspiration, perspiration, both of them, and also a result of “stumbling” over.

• Telephone

INNOVATION: transformation of an invention into a new product/service/process.

• It addresses new needs (often latent needs) on the part of consumers or firms; influenced by economic signals (like pursuit of profit).
• Telecommunication service

DIFFUSION: spread process of an innovation into the economy

• Telecom penetration

Theories of Innovation Diffusion:

-> Most of diffusion of innovation follow this shape:

• Lack of Incentives (pradst models)
• Lack of Informations (epidemic models)

Lack of Incentives

-> CHAR:

• Heterogeneous actors: each actor adopt its innovation
• Benefit > cost (price)
• Cost are declining over time (P_t > P_t+1).

Lack of Information:

Virusses spread with the same logic:

Economic Background (Milestones):

The Solow Residual:

-> Solow shows that for US between 1909-1947 technical change accounted for 87.5% of economic growth.

Griliches and the “CDM” Model

-> Crepon, Duguet & Marresse

Taxonomy:

Product vs Process Innovations

• Product Innovations refer to the creation of new goods and new services, e.g., Smart TVs and mobile phones
• Process Innovations refer to the development of new technologies for producing goods or new ways of delivering services, e.g., robotics and CAD/CAM technology.

Radical (disruptive) vs incremental (gradual) Innovations (often PRODUCT but also PROCESS)

• Technological breakthrough that might create new markets
• Small adjustments over existing products (or processes)

Drastic versus Non-Drastic Innovations (PROCESS)

• Drastic innovations have such great cost savings that they permit the innovator to price as an unconstrained monopolist
• Non-drastic innovations give the innovator a cost advantage but not unconstrained monopoly power

 

Schumpeter Mark I:

-> DEF: Individual capable of tranform an invention into an innovation through an entrepreneurial act.

• Theory of Economic Development: everyone is an enterpreneur only when he actually “carries out new combinations” and loses that character as soon as he has built up his business, when he settles down to running it as other people run their businesses.
• Entrepreneurial function is noti n the DNA of the individual. E. usually have different periods.
• E. is the real actor
• Enable to escalete position in the society.

-> MOTIVATION:

• Making money “dream and will to find a private kingdom”
• Recognition by community: “will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not for the fruits of success, but of success itself. From this aspect, economic activity becomes akin to sport”
• Self-Realization: “Finally, there is the joy of creating, of getting things done”

-> ECONOMICALLY:

• Expectation of supra normal profit is the key importance, first increases these expectations.
• Absence of extraprofit => low innovation rate.
• Patent: play great role, with instantaneous imitation => no innovation

-> 30 years lenght of a patent.

• CREATIVE DESTRUCTION: the new innovation kick out the established leaders.

-> Continue cycle

-> Creative = innovation; Distruction = destroy the market power of the estabished learder.

-> CHAR of INNOVATION:

• Novelty and non obiouvsness
• Industrial application

        => Innovation mainly from new firms =>

Neo-Schumpeterian Vision, SM II:

-> IDEA: High innovative performance of the capitalist system, characterized by the presence of large oligopolistic companies which has reduced innovation to “routine” with no need of “leadership”

• Obsolescence of the entepreneurial function.
• Innovation is one of the many routines processed in the firm

-> CHAR:

• R&D benefits from economies of scale( and scope)
• Capital market imperfections, especially for new firms.
• New firsm have difficulties to access capital market (financial resources, fondamental input in order to finance the R&D input)

->

❓Which market structure conduce to agreater innovation rate?

❓What extent “innovation should affect market structure?”

Market Structure for Innovation:

-> HP: Monopoly deadweight loss is the price that must be paid for high level of innovative activity.

ANTICIPATED MONOPOLY POWER: innovator’s ability to enjoy the full benefits of its research by preventing imitation (SM1)

ACTUAL MONOPOLY POWER: refers to the current monopoly position of a firm. This position can have positive direct (and indirect) effects on innovative activity (SM2)

Arrow’s view:

-> DEF: Monopoly provides less incentive to innovate than competitive industry because of the “Replacement Effect”.

-> Arrow’s view is opposite to the one of Schumpeter:

-> Incentives to invest in R&D can be different from capabilities to do so.

-> Geneally those type of innovations are introduced by…

• Radical innovation by startups (SM1)
• Incremental innovation by large companies (SM2).

📌Big Data & AI may modify some extent these stylized empirical facts.

-> For some economists market structure should be an oligopoly to most conducive to fast pace of technologcal change.

=> We might observe an inverted U-shaped relationship btw seller concentration and the level of inventive or innovative activity.

• PERFECT COMPETITION: abnormal profits = 0 => competitive firms may not have much incentives to innovate unless competitive pressure dictates that such investment is a necessary condition for minimizing cost and remaining in business.
• MONOPOLY: abnormal profits is positive => firms has the means to invest in research if it chooses to do so.

-> Lack of competitive pressure may imply there is little incentives to do so.

• OLIGOPOLY: abnormal profits may be positive.

->  There is competitive pressure

=> Firms have both means and incentie to invest in research and develpment that might provide a channel for the firms’ competitive rivalry.

Scenarios:

-> Given:

• Incumbent ()
• New Firm ()
• R&D lab -> Innovation.
• P: perceived probability of the I that the NF will not enter into the mkr

-> Scenarios:

1. Incremental innovation: new firm enter the market => duopoly ()
2. Radical innovation: if new firm acquired it => kick out the incumbent and become monopolistic market

1)Incremental Innovation:

1. NF:  0 -> pi_D => Incentive pi_D (highest willingness to pay for that innovation)
2. I: pi_M -> p*pi_M + (1-p)*pi_D , neutral to risk => incentive: pi_M-[p*pi_M+(1-p)*pi_D] = (1-p)(pi_M-pi_D)

2)Radical Innovation:

• The probability would be slightly to zero.
• Incentive of the new firm higher than the incumbent.

Innovation affecting MKT structure:

Appropriability Instruments:

❓Innovation should affect market structure?

APPROPRIABILITY: ability of the innovator to capture the benefits engendered by its own innovation (to the detriment of other potential imitating firms).

1. EXOGENOUSLY SYSTEMS (FORMAL MECHANISMS): innovator is assigned the right to exclude others to make unauthorized use of the innovation (temporary monopoly)
   • Reefer to the intellettual property right;
2. ENDOGENOUSLY (INFORMAL MECHANISMS): innovative firm through the establishment of strategic barriers to imitation.
   • Act themselfs,
   • Why? Patent don’t always work really well.

-> PROBLEMS of PATENTS:

• Information Release -> Spillover externality for someone else.
• Contractual Incompleteness & Difficult Enforement due to weitten document nature.

-> MAIN ENDOUGENOUSLY:

• Secrecy (Coca Cola formula)
• Lead Time (intel microprocessor)
• Complementary investments (in brand, sales & distribution and customer care)

-> Innovation itself could be useless if it’s not combined with another asset.

Intellectual Property Right:

-> 2 different viwes on patent rationale:

• Incentives View: use of formal mechanisms to protect innovations.
• Openness View: don’t need such a stong regime as IPR

-> Formal mechanism delay the implementation of those technologies and the birth of new innovations.

-> Historically in favour of the incentives view rather than openness.

-> Mechanisms that are more effective in protective the technology innovations:

📌Patent don’t really over perform.

Cumulativeness & Complexty of Innovation:

=> Patent might be use for preventing others from innovate rather to defend own innovation.

• # of patents on the same product is increasingly growing => Patent Thickets

-> CONSEQUENCES:

• Block others’ innovation
• Give more bargaining power in a licensing transaction

-> Firms are NOT patenting so much bcse they might not be used to defend own innovation but rather for preventing others from innovate!

• (Patent Thickets o Selva di Brevetti) Number of patent on the same product are increasingly growing.
• Blocking patents: some firms refuse to sell the right to use a patent.

-> Tragedy of Anti-commons

-> Owning one gve more bargaining power in the transaction

-> Ex: Microsoft patent portfolio:

• 60 000 patents, with 36 000 applications patents pending;

Network Economics:

-> DEF: business economics that benefit from the network effect.

• When the utility function is characterized by externalities.

-> The structural characteristics of the market leads to this situation.

-> Equilibrium doesn’t change in the short time.

Characteristics:

NETWORK EXTERNALITY: The preference depend on the intrinsic value of the good plus a bonus that depends on the number of other consumers having the same type of good:

STANDARD WAR: each firm invest in R&D for its own console and managed to patent some product features.

• Firm invested in marketing & advertising
• If it get lost => part of the investment is surely lost

COOPETITION LOGIC: may prevent the winner take most configuration, we have more firms producing firms.

• Collaboration: before any product is launched in the market (same disk can be read by other console, before to entering in the market)
• Competition: firms agree on adapt the same technological standard, but once one is launched in the market, won the war
  • Not too much on the technical features, they have to be similar to be on the same standard.

Further Considerations

Path-Dependent: the history of the business matter, in order to determine where we are now and where the company will be in the future => we need to study the early stage of the process.

• Only uderstanding what happened in the beginning of the market we undestand where we end up today.

Chaos Theory > Butterfly Effect: small modification in the past, respec on what actually occour, may lead to a completely different state of nature.

• Randomness play a role.

-> Network Markets elements:

• Network externality
• Strategic choice btw compatibility and incompatibility
• Switching costs & Technology replacement
• Significant economies of scale

1.Network Externality:

-> DEF: when there is a positive change in the utility a consmer due to the rising of the number of consumers that purchased the same produt.

• From a certain point the high-number effect finish (bottle neck effect > negative externality).

-> EXAMPLES:

• Telephone: a great number of people must have a phone to work properly.
• Email: we can’t write email to anybody if we are the only one having it.
• Softwares: videocasset recording, is aproduc with thehardware, the movie is the software. CD players and CDs, Smart TV Platforms and movies.

-> TYPES:

• DIRECT externality: value of the good increases automatically as the number of users increases

-> EX: phone or e-mail

-> Generally, the goods has no intrinsic value

• INDIRECT externality: the value of the good increases as the number of users increases but only in the presence of economies of scale in production (of software)

-> Bcse of a greater offer of complementary product (or a better quality) of the good (admitting that consumers care for software variety)

-> Good has often n intrinsic value.

-> These 2 typologies of NE gives origin to 2 types of networks:

Forms:

Direct Externality > Two-Way Network:

-> DEF: all the network where service AB is different from the service BA (they represet to different goods).

• Each knot of the network represents a user.
• Value of the network is a function of the active links inside the network.

-> In a 2-way network composed by n knots, there are n(n-1) potential links. The entry of a new user produces a positive externality on existing users, since she adds 2n new potential links.

Metcalfe’s Law: if a network is composed by n users and each user assigns a value to the network (w) which is proportional to the number of users

• The value of the network V = f(n²-n)
• If n is large à V = f(n²)      

-> f(n) = n, v(i) = c

=> Value of the Network:

-> PROBLEM: most of the time exagerate the value of the network:

Indirect Externality > 1-Way Network:

-> DEF: when one of AB or BA is unfeasible, or does not make econmic sense, or when there is no sense of direction in the network so that AB and BA are indentical, then the network is called a one-way network.

-> HARDWARE-SOFTWARE PARADIGM: the greater the usage of a hardware, the greater its at attractiveness in terms of developing “software”, an increase in the number of software programs further raises the attractiveness of the hardware and increases the number of new adopters and so on (“bandwagon effect” or “positive feedback”).

-> EXAMPLE: IBM, Apple II

3 Remarks:

1.Bandwagon vs Negative feedback:

-> DEF: if someone is experiencing a positve feedback and has competitors, these latter are probably experiencing a negative feedback.

• Higher # of users => higher incentive for the developers of complementary goods (sw) to ceate contents, the higher is the attractiveness of the platform (bandwagon effet or positive network effect)
• Lower number of users of the platform => lower is the incentive for the developers of complementar goods (sw)  to create contents for such platform => lower is the attractiveness of the platform => the lower is the number of users that use the platforme (negative network feedback)

2.Dynamics also affect “two-sided market”:

-> ROCHET & TIROLE: markets where one enable interactions between end-users, and try to get the two sides “on-board”

-> RYSMAN: a two-sided market is one in which:

1. Two sets of agents interact through an intermediary or platform, and
2. The decisions of each set of agents affects the outcomes of the ogher set of agets, typically through an externality

3.Empirical Estimates of Network Externalities

• Indirect: software, ATM, CD players, Yellow Pages, Videogames, Cryptocurrency, Electrical Vehicles.
• Direct: Telecommunications service, Mobile phones.

How Estimate NE:

1. Complementary Goods approach: derives a system of equations and uses the number of software available as a variale in hardware adoption regressions & vice versa.
2. Hedonic Approach: the instaled base is treated as a product characteristic that will have a positive effect on prices if there are network   effects.
3. Adoption Approach: the installed base at t-1 carries a positive expected sign in the adoption or diffusion equation at t.
4. Timing pproach: esdtablishes that firms with higher expected network effects will adopt a technology earlier and proxies expected netwrok benefits by the number of potential (internal) users of the technology.

The demand:

-> The demand for a Network Good does not only depend on price but also on the agents’ expectations about total consumers of the good.

• Differently from the to the standard demand curve

-> Who lead the market and win wars is decided, usually, in the initial phases.

-> IMPLICATIONS:

• Self-Fulfilling Prophecies: properties that relies on theyself

-> EX: if anybody buy the same product => There is no network externality.

• Chicken-Egg Paradox: if nobody make the first move the network good will be effectively unsold (lower or high price)

-> EX: Customers that buy hardare consider software and developer consider costumers of hardware.

• Upward Sloping: the aggregate demand could be upwarding loping. Firms can influence expectations of potential consumers about penetration of he good. Is totally plausible that as the expected size fo the network increases, consumers are willing to pay higher price for joining the network.

• Critical Mass in N.E.: For any given price charged by the firm(s) it is the minimal amount of consumers which join the network and are satisfied of this choice. Any larger amount will trigger the bandwagon effect, any smaller amount will bring to a network failure.
  • Endogenous given by the behaviour of the firm.
  • Is not a pure psycological process, but is everything routed in the network characteristics, is tangible, real, given by technological characteristic of the product himself.

-> AIM attract Critical Mass to innescaet the Bandwagon Effect.

NETWORK FAILURE: if everybody expect that nobody is going to buy a product => Nobody buy the product and we have a network failure.

Example:

-> Firm A invented a network good and commercialize it under monopolistic regime.

-> Trade-Odd:

• 🔺 price & 🔺 # of people to convince
• 🔻 price & 🔻 # of people to convince

-> Once the band wagon start is unstoppable since is given by the forces of the market.

-> Consider a network that is of interest for N potential agents. They are indexed by x which is uniformly distributed on the interval [0,1].

-> Each agent faces the binary decision of whether to buy the good or not. The good exhibits positive network externalities

 If she buys

 If she doesn’t buy

-> Since a continuum of potential consumers exists in the interval [0,1] there will be therefore a particular consumer, indexed by x*, such that she is indifferent between buying and not buying the good.

-> Consumer:

-> Hence all the consumers that are indexed with an higher a-priori enthusiasm for the service (x ≤ x*) will buy the good, while all the others (x > x*) won’t.

Critical Mass:

-> HP:

• Perfect foresight (self-fulfilling prophecies)
• Inverse aggregate demand curve for a network good becomes

-> Stable Equilibria:

1. Network of zero size (“network failure” caused by pessimistic expectations)
2. Network of large size (Critical Mass is reached & positive feedback is triggered)

📌Demand Curve & Supply curve.

-> When people…

• Willing to pay more than cost of the good => The size of the market expans
• Willing to pay less => The market contracts.

Path:

-> Typical path of a network good in a dynamic framework, it applies to goods with direct or indirec NE.

1. Launch (0 – Xl): starting from a fail (fixed videophone), passing through troubled expansion (fax & fixed telephone)
2. Rapid growth (Xl – Xm): most of the successful social media
3. Maturity (Xm – 100%)

MERIK GOOD: good consider necessary in order to have happy people.

• Is a basic level of service
• Are those good that are consider essential for costumer and the public policy maker

-> Universal public policy: policy that encourage the usage of those goods till the 100% of consumers has it.

-> Comparison with the diffusion of a “standard” innovation:

Start-Up Problem > Strategic Policies:

• Compatibility with competitors: share effort but be careful since interlinking can generate a free-riding problem
• Promotional prices (very often below costs)
• Advertising (size & nature)

Presence of Community of Interest:

-> DEF: when pepople want to communicate with a predeterminate number of people, and it’s always the same => They will use the same

Multi-homing on the side of Consumer: every consumer doesn’t use just one platform, but uses more.

Multi-Homing on the side of Producer: the same videogame is not produced just for one consoile, but for multiple console.

-> Local Network Externalities vs Withing-Country Network Externalities

2.Strategic Choice Between Compatibility and Incompatibility:

-> DEF COMPATIBILITY: two products that can work together. If this is the case we say that different brands adopt the same standard.

• INCOMPATIBLE: in the opposite case.

DOWNWARD COMPATIBILITY: a new release of a product is compatible with the old one, but it is not the other way around.

ONW-WAY COMPATIBLE: if it can work together with the output of a rival brand, but it is not the other way around (Linux vs Windows)

• New release compatible with the old one but is not the other way round.

The Strategic Choice??

CHAR of a Network Market

-> To better understand the consequences of the strategic choice (comp vs incomp):

• Success of standard will depend on its capacity to solve the start-up problem & trigger the bandwagon effect.

-> If there is competition between firms (non-compatibility):

• Network Markets “Naturally” Tends to Monopoly
• Choices of early adopters are fundamental and can determine the victory of a standard against the other standards (so early stages are extremely important for firms)
• First mover advantage.
• Risk that an inferior technology could emerge as winner of a standard war (possibility from theoretical POV, empirically very difficult)

-> EX: Qwerty vs Dvorak or Quadrophonic sound.

-> EXAMPLE:

• 2 compatible goods: A & B
• Population (N=1): agents who prefer A (a) & agents who prefer B (b), a+ b = 1.
  • Utility of a: v(x) if buy A and v(x)-t if buy B
  • Utility of b: v(x) if buy B and v(x)-t if buy A.
• Suppose market is perfectly competitive => firm charge the same price
• If a sequential entry of consumers into the market:
  • Consumer b will buy A only if v(a)-t > v(b) and
  • Consumer a will buy B only if v(b) – t > v (a).
• Mapping it: the achievement of a critical mass in a standard war

Certain Point: when the e-bay touched the technological absorbing variant in which people that before prefered other brands started to use e-bay.

-> Early adopters are more important (for reaching the critical mass) the higher are the network externalities (high v’) and the lower is the love for variety (low α)

-> Same logics applies to the first mover advantage.

📌 Model makes self-evident the risk that an inferior technology could emerge as winner of a standard war.

Forces May Spur Standardization:

• Firms bear high costs in R&D to develop their network good & in large measure they are sunk because highly specific.
• Firms incour in high marketing expenditure (again of some sunk nature) and coordination with complementors can also be extremely costly when a firm choose incompatibility & opt for a go-it-alone strategy.

=> Standaards are usually defined through international “public” organizations global or alliance between firms (coopetition logic) or choose an “open standard” policy (low licensing fees).

=> COOPETITION: Collaboration (Upstream) & Competition (Downstream)

The Logic of Open Standard through a Game-Theoretic Approach:

Battle of the Sexes Games:

A\B	Lead	Follow
Lead	(3,3)	(6,4)
Follow	(4,6)	(0,0)

-> RESULT: both firms will prefer to cooperate rather than fight each other

• 2 Nash Equilibria

Rather Fight than Switch Game:

A\B	Lead	Follow
Lead	(3,3)	(8,2)
Follow	(2,8)	(0,0)

-> RESULT: both firms prefer to fight rather than cooperate

• 1 Nash Equilibria

=> Equilibrium of first game Pareto dominates the equilibrium of the second game.

Take-Away

-> This example is for those firms that are better off if are cooperative or not greedy.

-> Firms can switch from the second to the first game if the leading firms:

• Set very low licensing fees (policy of open standard)
• Reduce absorption costs of the follower.

=> The STRATEGIC CHOICE implies the following trade off:

• Consumer don’t have to decide the winner.

Cases on Standard Wars:

Banwagon effect in high-technology industries:

-> Firm choose NO COMP (most rational strategy) => signal an irratoinal commitment to win the race at all costs.

• The most rational strategy for an oligopolist may be to signal an irrational strategy commitment to punish price cutters-regardless of the ruinous cost that it may incur by doing so.

-> Factors that influence standard war:

• Size
• Financial resources
• Commercial strength (marketing distribution channels)
• Brand & reputation

VHS vs Betamax

-> In 1970 there was a partnership btw Sony, JVC and Matsushita for develop a prototype of VCR.

-> Sony wanted to stay alone, create a unique standard, but they were alone and lose the war.

Take-Away:

• Ex-post it’s easy to understand the use of a technology, but it’s critically ex-ante.
• The big guy  (Schumpeter M I play a role to define the industry)
• Importance in the economy of scale in determining the victory of a standard compared to another.

Strategic Position Decisions:

-> STRATEGIES:

• Sponsor/defend: development of a standard and restriction of the use towards concurrent firms (high licensing fees)
• Give away: possibility for the concurrent firms to use the standard without restriction or with low licensing fees
• License in: use of a standard developed by another firm
• Clone: use of an open standard without restriction

	Closed std	Open std
Lead (development)	SPONSOR/DEFEND	GIVE AWAY
Follow (adoption)	LICENSE IN	CLONE

-> PROS and CONS:

DVD & DIVX:

-> Fake war, DIVX weren’t appreciated bcse they proposed other functionalities that weren’t required by the public, and they didn’t reach 1 year.

VAPORWARE: strategic announcement to influence the market

Revenge DVD vs Blue Ray:

📌Blue Ray can contain till 50Gb, while DVD till 4Gb, videos werereduced in the DVD more than BR. But u can’t use Blue Ray in PC while u can with DVD.

-> Sony & Toshiba started a cooperation, but it fail: the two standard were too different.

-> Toshiba made a partnership with Microsoft for commercialize Xbox with HD DVD.

-> Sony commercialized the PS 3 with Blu-Ray

-> In the years Paramount and DreamWorks moved from Sony to HD DVD creating more balance in the market.

-> Despite efforts and investments sales of both formats had been sluggish by any measure.

-> The slow consumer adoption was generally attributed to their reluctance to upgrade qhile the format wars was till ongoing

-> After a while the market and Warner decided to adopt the Blue-ray. Netflix & Wal-Mart adopted the standard leading to Toshiba’s surrender.

-> FAILURE: too different formats, too large sunk investements to lose, too high absorption costs to incur for the “follower”.

 

3.Switching Costs & Technology Replacement:

-> DEF: Cost suffered from consumer to migrate from the whole network technology to a new network technology.

Factors:

• Price
• Perofrmance
• Individual Switching Costs
• Expectation of Consumers about other consumers’ behavior (Collective Switching Costs)
• Coordination Problems & Potentially Strong Lock-in Effect

Technology Replacement:

-> We have to distinguish between….

Individual Switching Costs:

-> DEF: learning & non-transferability of complementary assets (sunk costs given by non-fully redeployable product-specific investments)

• Search costs
• Loyalty costs (psychologica)

Collective Switching Costs:

-> DEF: value of the new network good will depend on how many users will switch (bcse of network externalities).

-> For what concerns Hw/Sw Paradigm products downward Compability is often pursued to ease migration from olt to new, but it’s now time also to highlight that this strategy may also come with some costs (and that’s why it is not “always pursued”).

Pros	Cons
Exploit switching costs (library of old software still usable by the consumers migrating towards the new hardware)	Technological “evolution” vs. “revolution”
	New Chicken-egg paradox can be more complex to be solved Little incentive for software developers to write new software in the new format, but then consumers see that new titles are realized with the old format and so there could be no great incentive for them to migrate either towards the new hardware.

In The End:

-> In Network Markets, competition & rivalry could not be within the market, but rather for it.

-> Monopoly can be only temporary & can be interrupted by technological breakthroughs

📌Monopoly are becoming more stable thatn in the recent past:

• Now are conglomerates with enormous advantages (finacnail and data resources)
• Are persistent top investors in R&D (SM2)
• The narrativer of a successful entrepreneur is now the one who “exist” by selling its business to an incumbent (lack SM1)
• Large acquisitions of start-ups made by large incumbents

Microsoft vs Netscape

-> Netscape Novigetare (1994) -> p: 40$ – 60$

• Microsoft didn’t caught the internet opportunity, it though internet coudn’t go without broadband connection => Netscape take the 7’% of shares.
• STRONGER: they pursuing a multi-platform strategy where they move the key API into the client to commoditze the underlying operating system

-> MICROSOFT STRATEGY to kill Netscape:

• Internet explorer had very poor performance compared to Netscope bcse of R&D. in 1995 only 5 people were working on I.E. in 1999 were 1.000 (Microsoft spend 100 mln/y for increasing R&D).
• Bundling, but stronger: was a technological tying, internet browser was put inside windows. + Agreement with OEM (Original Equipment Manufacturer).