Adoption of network technologies in oligopolies

We analyze a two-stage non-cooperative game when the firms choose first to adopt (either simultaneously or sequentially) one of two network technologies, and then compete on the market. The two-stage procedure and the assumption that firms have heterogeneous tastes with respect to the technologies lead to a novel treatment of network externalities. In particular, as the network of some firm enlarges, the change in this firm's payoff is shown to depend both on the newcomer's identity and on the composition of the networks and, as a result, is not necessarily positive. (C) 1998 Elsevier Science B.V.