Increasing Returns

Theory that in markets displaying the Network Effect, early success translates into more and more success (momentum), resulting in significant marketshare concentration.

Examples: VCRs (VHS vs Beta), computer operating systems (MsWindows vs everything else), etc.

In some cases this can be reinforced by Lock-In properties - as long as the format for MsOffice keep changing, it's impossible for 3rd party applications to maintain file compatibility, therefore if you're going to have to exchange files with an MsOffice user (which is a near-certainty given their existing market share), then you have to buy MsOffice yourself.

Some also apply it to Consumer Branding markets: where being the "biggest" (First Mover Advantage) leads to more name recognition, leading to a bigger share of future market growth, etc. - this is a more dubious argument.

Sometimes it's due to a Market Distortion.

Can also be due over time to Learning Curve.


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