The disintegration of network externalities industries : the computer and the telecommunications equipment industries

Abstract

This paper explains from a transaction cost economics approach disintegration of network industries whose externalities depend on seamless interaction between its constituent components. I simple two-period model is developed that explain why the positive effects of integration in the first phase are turned into negative effects in the second period causing disintegrated firms to replace integrated ones. The model is used to explain the disintegration of the computer industry, the network equipment industry and the cellular handset industry with reference to leading firms such at IBM, AT&T, Ericsson and Nokia.