System Dynamics Analysis of Network Externality in Complex
Market Structures, Part II: Basic Strategy for Re-entry and
New Product Distribution
Yoshi Fukunaga, Y. Takahashi, N. Tanaka, A. Uchino and M. Morita
Yoshitoku Fukunaga(Gakushuin Univ.), Yutaka Takahashi(Gakushuin
Univ.), Nobuhide Tanaka(Gakushuin Univ.), Akira Uchino(Senshu
Univ.), Michiya Morita(Gakushuin Univ.)
Gakushuin University,
1-5-1 Mejiro Toshima-ku, Tokyo 171-8588 Japan
E-mail: yoshitoku.fukunaga@ gakushuin.ac.jp
In the previous conference, we proposed the existence of network externality in both
product and its complementary goods, and the archetype signifying the market share
process when two products with such attributes compete. As a case study of this
archetype, two major Japanese home video game players, SONY PlayStation and
NINTENDO 64 were considered. It was shown that the hardware
together with its complementary goods, software titles, and the corresponding distribution
dynamics contributed to the market dominance of the PlayStation.
In this paper, the research is expanded, proposing a model that represents and forecasts
the process of market share increase by a new entrant into the market characterized by the
market "Lock-in" by a single product possessing network externalities. In the Japanese
market, Sega initiated the market re-entry with the introduction of its new product,
DreamCast in Nov. 1998. Due to the re-newed advertisement, distribution, and product
development, the first lot of 150,000 units were sold out within a few hours. The
achievement of 1 million units sales is expected in a short period of time. Sony, to
maintain its market dominance, has initiated a price reduction of PlayStation.
In this paper, using the re-entry of Sega as the case, the feasibility of the effects of
advertisement, spread of re-newed purchase decision standard to the potential needs
layer, pricing strategy, and Sony's competitive strategy, in addition to the network
externality, are discussed on the model.
