Complexity and complicity in mobile telecommunications : the effect of network externalities and isomorphic strategy

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.