TippingandConcentrationinMarketswith IndirectNetworkEffects.pdfVIP

informs ® Vol. 29, No. 2, March–April 2010, pp. 216–249 issn 0732-2399 eissn 1526-548X 10 2902 0216 doi 10.1287/mksc.1090.0541 ©2010 INFORMS Tipping and Concentration in Markets with Indirect Network Effects Jean-Pierre H. Dubé Booth School of Business, University of Chicago, Chicago, Illinois 60637, and National Bureau of Economic Research, Cambridge, Massachusetts 02138, jean-pierre.dube@ Günter J. Hitsch, Pradeep K. Chintagunta Booth School of Business, University of Chicago, Chicago, Illinois 60637 {guenter.hitsch@, pradeep.chintagunta@} This paper develops a framework for measuring “tipping”—the increase in a firm’s market share dominance caused by indirect network effects. Our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects. In practice, this measure requires a model that can predict the counterfactual market concentration under different parameter values capturing the strength of indirect network effects. We build such a model for the case of dynamic standards competition in