Economic and Technical Drivers of Technology Choice: Browsers

by Timothy F. Bresnahan & Pai-Ling Yin

Overview — Did Microsoft defeat Netscape in the browser war because its technology was better, or because MS created a better business strategy? The authors draw on the 1996-1999 browser battles to examine technical progress versus economic forces in driving diffusion on new technologies. Key concepts include:

  • Rapid expansion of demand for PCs allowed Internet Explorer to capture new browser users and swamp the number of existing users of Netscape in the 1990s.
  • More than better technology, better distribution can help second movers overcome first-mover advantage.

Author Abstract

The diffusion of new technologies is their adoption by different economic agents at different times. A classical concern in the diffusion of technologies (Griliches 1957) is the importance of raw technical progress versus economic forces. We examine this classical issue in a modern market, web browsers. Using a new data source, we study the diffusion of new browser versions. In a second analysis, we study the determination of browser brand shares. Both analyses let us examine the important of technical progress vs. economic forces. We find that the critical economic force was browser distribution with a complementary technology, personal computers (PCs). In both of our analyses, distribution had a larger effect on the rate and direction of technical change than technical browser improvements. This shows an important feedback. Widespread use of the Internet spurred rapid expansion of the PC market in the late 1990s. Our results show that the rapid expansion in PCs in turn served to increase the pace of diffusion of new browsers and thus move the economy toward new mass market commercial Internet use.

Paper Information