Subject: How Mobile Communications corporations compete in technological environments of low strategic differentiation. The preservation of the competitive environment through complex adaptive behavior. Isomorphic strategic behavior as a means for technology risk reduction.  Research conducted in collaboration with Warwick Business School, United Kingdom.

Abstract: In this paper we review the literature on the network dynamics of the information economy and the implications for strategic management. We discuss the relevance of network theory in an interconnected economy and look at the self-reinforcing dynamics of increasing returns in the form of network externalities, critical mass and market tipping. Critical mass triggers exponential market growth at a particular stage in the life cycle of a network product. Market tipping is as a consequence of increasing returns whereby early entrants may benefit from a "winner takes all" scenario. However network externalities pose a paradox in the new information economy. Not all network industries show signs of market dominance or market tipping, despite the presence of strong increasing returns. In interconnected networks, market shares are likely to converge due to network externalities arising from the common industry platform. The strategies of companies operating on interlinked platforms show evidence of isomorphic behavior, influenced by regulation, technology standards and network interconnectivity. The evolutionary perspective of network industries throws light on the dual nature of market development, whereby self-reinforcing and self-balancing factors come into play.

Keywords: network externalities, critical mass, innovation diffusion, self-reinforcing dynamics, market tipping, winner takes all, interconnected industries, network industries, isomorphic strategy, strategic differentiation.

Abstract:  The new information economy acts as a microcosm where the dynamics of complexity are present through the pervasive effects of increasing returns. Network externalities are the ubiquitous force behind winner-takes-all scenarios where only the strongest firms survive. The effect is evident in cases such as Microsoft’s quasi-monopoly and eBay’s dominance of the consumer and small business auctions market. Interestingly however, many important industries exhibiting strong network externalities, have emerged with no dominant winner and the competitive environment is preserved. This empirical study of the UK mobile telecom industry, which tracks an 18-year history of the mobile network operators as well as the strategies and product diffusion patterns of the networks, found firms counteracting winner-takes-all forces. Results indicate the presence of complex adaptive behavior between competing firms. Strategies are reconfigured to ensure the collective survival of all operators in the industry. The probability that one firm will dominate and that the rest will fail is eliminated. A complex set of isomorphic strategies emerges at the levels of network platforms, technical standards and consumer platforms. Through strategic herding, network externalities are exploited to act for the benefit of the whole industry causing competitors’ market shares to converge dramatically to equal levels.