In the competitive investment environment of B2B E-commerce platform, the first mover has the advantage of network externality while the followers have the advantage of declining IT cost. Aimed to investigate the optimal Information Technology (IT) investment timing strategy under the interplay of network effect and declining IT cost, this paper develops an option game model under the uncertainty environment where the market demand is stochastic and the random command shock follows a geometric Brownian motion process. By solving this option game model, we offer the payoffs and threshold of platform as leader, follower or simultaneous investor. Equilibrium results show that there exist two kinds of equilibrium strategies, simultaneous equilibrium and sequential equilibrium when we take into account the interaction of network effect and IT cost decline and platforms choose which strategy depend on the relative magnitudes of network externality and IT cost decline level.
Zhu, Li and Li, Li, "Investment Timing Game of B2B E-commerce Platforms Under Network Externality" (2016). WHICEB 2016 Proceedings. 48.