Why and How Quality Wins Over Network Effects and What It Means
Published 4/1/2009
Author: GERARD J. TELLIS, EDEN YIN, and RAKESH NIRAJ
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Executive Summary
Contemporary high-tech markets are marked by two key characteristics: the presence of network effects and a tendency for one brand to dominate with a high market share. Casual observers have inferred causality from these two factors, suggesting that network effects lead to high market share. Furthermore, popular anecdotes of supposedly inferior VHS dominating beta or supposedly inferior QWERTY dominating Dvorak have led others to conclude that network effects lead to perverse markets in which inferior brands dominate superior ones. Some economists have gone on to develop formal models to show how such perverse equilibria occur. Tellis, Yin, and Niraj (2009) provide compelling evidence to refute this conclusion. They find that, in general, quality wins despite network effects, which even enhances the beneficial effect of quality. The insightful commentaries of Brown and Morgan (2009), Ratchford (2009), Rossi (2009), Reibstein (2009), and Shugan (2009) seem to concur that the evidence that Tellis, Yin and Niraj (2009) provide is persuasive. However, the commentaries raise several important issues that enrich the meaning of the constructs, and the interpretation of the findings and provide a wealth of directions for future research.
Biography
Gerard J. Tellis (PhD, University of Michigan) is Director of the Center for Global Innovation, Neely Chair of American Enterprise, and Professor of Marketing at the University of Southern California’s Marshall School of Business. He is an expert in innovation, new product growth, market entry, global diffusion, advertising, and pricing. He has published four books and more than 100 articles. His publications have won 15 awards, including four of the most prestigious awards in the field of marketing: the Frank M. Bass, William F. Odell Award, Harold D. Maynard Award (twice), and the Vijay Mahajan Award for lifetime contributions to marketing strategy. Tellis is a trustee of the Marketing Science Institute and a senior research associate and was Visiting Chair of Innovation, Marketing, and Strategy in the Judge Business School at Cambridge University. He has also been a distinguished visitor at Erasmus University, Rotterdam. He is an associate editor of Journal of Marketing Research and is on the editorial review boards of Journal of Marketing and Marketing Science.
Eden Yin is Assistant Professor in Marketing in the Judge Business School and is a fellow of St. Edmund’s College at Cambridge University. He received his PhD from the Marshall Business School at the University of Southern California, Los Angeles. Dr. Yin’s principal research interests are within new product growth in high-tech industries, consumer innovativeness, and internationalization strategies for firms from emerging economies. His work has appeared in Marketing Science and Management International Review, among other outlets.
Rakesh Niraj is Assistant Professor of Marketing in the Marshall School of Business at the University of Southern California, where he teaches classes in Marketing Research and Marketing Models. He received his PhD in Marketing from the Olin School of Business at Washington University in St. Louis. Rakesh’s research interests are in quantitative modeling of marketing phenomena in diverse settings, such as distribution channels, information strategies, customer relationship management, and consumer choice in consumer packaged goods and high-tech products. His work has previously appeared in Journal of Marketing, Management Science, and Marketing Science, among other journals.
J Marketing Research, Volume 46, Number 2, April 2009
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