Two important welfare implications of network effects are that (1) market forces often result in suboptimal standardization, that is, left alone the market may fail to achieve standardization when it is socially desirable and (2) even if the market settles on a standard, the chosen standard may...

In April 1997, a consortium of hardware manufacturers and movie studios launched the DVD format. By that fall, electronics retailing giant Circuit City announced its intentions to launch a partially incompatible format known as DIVX. This Paper assesses Circuit City’s strategy to establish the...

In this Paper, we empirically test for network effects and preannouncement effects in the DVD market. We do this by measuring the effect of potential (incompatible) competition on a network undergoing growth. We find that there are network effects. The data is generally consistent with the...