Competing Technologies and Market Dominance : Standard “Battles” in the Local Area Networking Industry

The rise of Fast Ethernet as the dominant standard for high-speed connection in the Local Area Networking industry is chosen to study the interaction between increasing returns to adoption and technical change in innovation diffusion. Contrary to most of the empirical papers on diffusion with increasing returns, which study competition between an “entrenched” technology and a new competitor, the focus is on the case in which several and different versions of a new technology are competing at the same time for market dominance. Within this context, this article studies under which conditions an early technology may fail to capitalise on its initial time advantage and a new version, without a clear early lead, may become dominant. In particular, we will consider a case in which the initial time advantage is made ineffective by consistently adverse technological expectations. Then, we analyse how the arrival on the market of different categories of buyers, sensitive to specific applications, further contribute to weaken the early leader and strengthen a competing version. This is more likely to occur when buyers are highly familiar with the characteristics of that specific version