Lock-Ins in Network Effect Markets -- Results of a Simulation Study

Adoption processes in network effect markets -- like the ICT industry -- often lead to so-called "lock-ins" which means that one single standard or technology gets adopted by almost all market participants. Based on the work of Arthur [1] we present a simulation based model explaining a market\´s tendency to lock-in by means of two factors: the strength of network effects and the network topology of potential adopters. In order to obtain a better understanding of the interconnection of the actors\´ decisions we developed an approach to compare markets that show the same network effect strength but face different actor network topologies. We found that the predisposition of a market to show a lock-in induced by network effects generally increases with growing network effect strength and network density. However, our analysis shows that the way these two factors affect a market\´s tendency to lock-in varies between random topologies and real life social topologies.