Network Externalities and the Provision of Composite IT Goods Supporting the E-Commerce Infrastructure

Theoretical research on networks and technology standards suggests that network externalities, the additional value of a product or service resulting from an existing installed base, have strategic implications. This paper uses the WWW software market to empirically test the network externalities hypothesis in a market of composite goods. Among the findings is that vendors who provide both components to a composite goods market (e.g. client and server) enjoy a higher price premium than do single-product (e.g. server) providers. The results suggest that composite markets exhibit network externalities and yield important managerial