The Evolution of ICT Markets: An Agent-Based Model on Complex Networks

Information and communication technology (ICT) products exhibit positive network effects. The dynamic process of ICT markets evolution has two intrinsic characteristics: (1) customers are influenced by each others' purchasing decision; (2) customers are intelligent agents with bounded rationality. Guided by complex systems theory, we construct an agent-based model and simulate on complex networks to examine how the evolution can arise from the interaction of customers, which occur when they make expectations about the future installed base of a product by the fraction of neighbors who are using the same product in his personal network. We demonstrate that network effects play an important role in the evolution of markets share, which make even an inferior product can dominate the whole market. We also find that the intensity of customers' communication can influence whether the best initial strategy for firms is to improve product quality or expand their installed base.