The Qwerty Phenomenon: Its Relevance in a World with Creative Destruction

Open access

Abstract

Does quality always win? Looking at the critical drivers of success in and efficiency of high-tech markets, two contrasting perspectives exist in the academic sector. One camp argues that the higher quality of a product or service exerts a major influence on its market success. Consequently, an inferior market player should not persist. The opposite group emphasises the importance of network effects, which can lead to lock-ins in inferior situations or being stuck in a bad equilibria accordingly, also known as the QWERTY phenomenon. In this paper, we investigate this debate. We demonstrate that the missing consideration of the status quo bias in previous studies leads to the rejection of the QWERTY phenomenon, which means that independent of the quality offered by a business or service the pure moment of who reaches the customer first, establishes a status quo from which it is hardly possible to escape. We give several examples with inferior market leaders. We suggest that this phenomenon causes only temporary harm, and lock-ins could be overcome by Schumpeterian creative destruction. Therefore, we claim that even if lock-ins exist, they pose no problems as innovative market participants have the opportunity to introduce new business models.

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56. David, P. A. (1985). Clio and the economics of QWERTY. American Economi Review, 77(2), 332-337.

57. Dubé, J.-P. H., Hitsch, G. J., & Chintagunta, P. K. (2010). Tipping and concentration in markets with indirect network effects. Marketing Science, 29(2), 216-249.

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60. Gabaix, X., Laibson, D., Moloche, G., & Weinberg, S. (2006). Costly information acquisition: Experimental analysis of a boundely rational model. American Economic Review, 96(4), 1043-1068.

61. Geng, S. (2016). Decision time, consideration time, and status quo bias. Economic Inquiry, 54(1), 433-449.

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65. Gretz, R. T., & Basuroy, S. (2013). Why quality may not always: The impact of product generation life cycles on quality and network effects in high-tech markets. Journal of Retailing, 89(3), 281-300.

66. Halaburda, H., Jullien, B., & Yehezkel, Y. (2016). Dynamic competition with network externalities. Toulouse School Economics Working Paper N° TSE-636.

67. Hartman, R., Doane, M., & Woo, C.-K. (1991). Consumer rationality and the status quo. The Quarterly Journal of Economics, 106(1), 141-162.

68. Heggedal, T.-R., & Helland, L. (2014). Platform selection in the lab. Journal of Economic Behavior & Organization, 99, 168-177.

69. Herman, L. (2001). Phoenix: The fall and rise of videogames (Vol. 3rd ed.). Springfield.

70. Hossain, T., Minor, D., & Morgan, J. (2011). Competing matchmakers: An experimental analysis. Management Science, 57(11), 1913-1925.

71. Hossain, T., & Morgan, J. (2009). The quest for QWERTY. American Economic Review, 99(2), 435-440.

72. Iyengar, S. S., & Lepper, M. R. (2000). When Choice is Demotivating: Can One Desire Too Much of a Good Thing. Journal of Personality and Social Psychology, 79(6), 995-1006.

73. Johnson, E., & Goldstein, D. (2003). Do defaults save lives? Science, 302, 1338-1339.

74. Johnson, E., Hershey, J., Meszaros, J., & Kunreuther, H. (1993). Framing, probability distortions, and insurance decisions. Journal of Risk and Uncertainty, 7, 35-51.

75. Kahneman, D., Knetsch, J., & Thaler, R. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. Journal of Economic Perspectives, 5(1), 193-206.

76. Katz, M. L., & Shapiro, C. (1985). Network externalities, competition, and compatibility. American Ecnomic Review, 75(3), 424-440.

77. Kay, N. M. (2013). Rerun the tape of history and QWERTY always wins. Research Policy, 42(6), 1175-1185.

78. Kempf, A., & Ruenzi, S. (2006). Status quo bias and the number of alternatives: An empirical illustration from the mutual fund industry. CFR Working Paper, No. 05-07.

79. Lam, W. M. W. (2015). Switching costs in two-sided markets. Core Discussion Paper 2015/24.

80. Liebowitz, S. J., & Margolis, S. E. (1990). The fable of the keys. Journal of Law and Economics, 33(1), 1-25.

81. Liebowitz, S. J., & Margolis, S. E. (1994). Network externality: An uncommon tragedy. Journal of economic perspectives, 8(2), 133-150.

82. Limperos, A. N., Schmierbach, M. G., Kegerise, A. D., & Dardis, F. E. (2011). Gaming across different consoles: Exploring the influence of control scheme on game-player enjoyment. Cyberpsychology, Behavior & Social Networking, 14(6), 345-350.

83. Liu, H. (2010). Dynamics of pricing in the video game console market: skimming or penetration. Journal of marketing research, 47, 428-442.

84. Madrian, B., & Shea, D. (2001). The power of suggestion: Inertia in 401(k) participation and savings behaviour. The Quarterly Journal of Economics, 116(4), 1149-1187.

85. Mandler, M. (2004). Status quo maintenance reconsidered: Changing or incomplete pereference? The Econoimic Journal, 114, 518-535.

86. Meyer, T. G. (2012). Path dependence in two sided markets: A simulation study on technogical path dependence with an application to platform competition in the smartphone industry. Berlin.

88. Ritov, I., & Baron, J. (1992). Status-quo and omission biases. Journal of Risk and Uncertainty, 5, 49-61.

89. Rysman, M. (2009). The economics of two-sided markets. Journal of Economic Perspectives, 23(3), 125-143.

90. Samuelson, W., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of Risk and Uncertainty, 1(1), 7-59.

91. Schumpeter, J. A. (2004). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (Vol. 10th ed.). New Brunswick.

92. Schumpeter, J. A. (2008). Capitalism, socialism, and democracy (Vol. 1st ed.). New York.

93. Schwartz, B. (2004). The Paradox of Choice: Why more is less. New York City: Harper Perennial.

94. StatCounter. (2016, June 9th 2016). Top five desktop, tablet, & console browsers from Jan 2009 to Mar 2016. Retrieved from http://gs.statcounter.com/#browser-ww-monthly-200901-201603

95. Tellis, G. J., Yin, E., & Niraj, R. (2009). Does quality win? Network effects versus quality in high-tech markets. Journal of Marketing Research, 46, 135-149.

96. Tripp, N. (2016). Google Chrome 39 Review. Retrieved from http://internet-browser-review.toptenreviews.com/google-chrome-review.html

97. Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The Quarterly Journal of Economics, 106(4), 1039-1061.

98. Wall, A. (2015). History of search engines: From 1945 to Google today. Retrieved from http://www.searchenginehistory.com/

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