The Stability of Networks: an Evolutionary Approach to Standardization

This paper presents an evolutionary framework to investigate the economics of networks. It turns out that two key elements of standardization, i.e., network externalities and barriers to entry, have an evolutionary explanation. The analysis employs a new concept of evolutionary stability. In contrast to the ESS, it considers stability with respect to invasions of an exogenously given size. This extended stability calculus gives an evolutionary interpretation of network stability, i.e., barriers to entry, and is used to analyze the compatibility decisions of a monopolist.