Why Quality May Not Always Win: The Impact of Product Generation Life Cycles on Quality and Network Effects in High-tech Markets

• We examine how product generation lifecycle impacts the relative influence octs on market share.
• We replicate and confirm prior results that both quality and network effects are critical drivers of market share.
• Most importantly, we show that in the Growth and Maturity phases of the product generation life cycle, network effects can trump quality effects.

Marketing literature has recently witnessed major debates about the critical drivers of success – namely, the quality versus network effect, in high-tech markets as well as the efficiency of such markets. Extant research suggests that both quality and network effects are significant factors determining market share in these markets, but that quality effect is more important. Based on surveys of several retail managers and a new dataset on the US video game industry from 1995 to 2007, we replicate and extend this research in several directions: (1) we replicate and confirm prior results that both quality and network effects are critical drivers of market share; (2) network and quality effects vary over the product generation life cycle, and hence, quality does not always win; and (3) in the Growth and Maturity phases of the product generation life cycle, network effects can trump quality effects. Our empirical results provide some practical insights for retail managers.

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