Network externality can encourage adoption when a network is growing in size. Network externality, however, can also encourage abandoning when a network is getting small. Therefore, the challenger’s action focusing on persuading a part of the market can eventually affect the whole market when network externality is at work. This paper discusses two local attacking strategies, namely, “focusing on the high-end” and “focusing on the low-end”, and compares their effects. The conclusions show that the former strategy generally exhibits stronger eventual effects than the latter. Although direct effects are local, the eventual effects could be global when network externality is strong and/or consumers have small differences in their reservation prices. Based on our results, the incumbent should set a price keeping all installed users away from being stranded. If any installed user gives up the incumbent’s technology, he or she may be the fuse to trigger the chain reaction. Thus, a better approach is to “make the fuse wet”. To the challenger, local attacking strategies work better when network externality is strong and/or reservation prices of installed users are nearly the same.
Teng, David Ching-I and Chiang, David Ming-Huang, "Focusing On The High-End Or Low-End? Local Attacking With Network Externality" (2003). ICEB 2003 Proceedings (Singapore). 37.