To Commit or Not: Reputation and Preemption Strategies in Competing Technology Networks

When an incumbent technology network faces a new entrant with superior capabilities, it may choose to announce a technology improvement as a preemption strategy to avoid forfeiting users. While the incumbent faces the dilemma of how much improvement it should commit to, users face the challenge of deciding how to divide resources (e.g., time spent) between the two networks. Using a two-period decision theoretic model, where users can be loyalists (who always prefer the incumbent) or switchers (ready to switch to the new entrant and back under suitable conditions), we show that in the presence of high switching costs, a low or high reputation leads the incumbent to a pure strategy of committing to a given level of improvement in technological capability. However, an incumbent with moderate reputation may not commit to any particular level of improvement. Consumer welfare may be adversely affected as a result of chosen strategies.