Java and object standardization in the Internet – A way to more competition in the software industry?

The computer software market is a textbook example of network externalities: if a user decides to work with a specific program, the utility of all other users of the same product increases. This increase in utility is not compensated for by the market; thus one speaks of network externalities. Such network externalities lead to a natural tendency towards quasi standardization, favoring a high market concentration on the supply side. This article demonstrates that Java programs combined with an appropriate object standardization may reduce the influence of the network externalities, giving smaller companies a better chance to compete successfully. This revised version was published online in August 2006 with corrections to the Cover Date.