Chat apps and multiple equilibria

   I have introduced "multiple equilibria" in my past post. Is it worthwhile to learn this new concept? This depends on whether the concept is really useful. In my past post, I have defended that the concept is very useful as it indicates that when multiple equilibria exists, it is possible to improve the world at low cost. How wonderful this would be! Nonetheless, if multiple equilibria can almost never be found in the real world, then the concept is still not useful. So, can we find important examples in the real world?

   I have already given one example - bank run - in my last post. But that's not enough. Readers can indeed pick up more examples from the Nobel-prize winning economist Philip Dybvig's Nobel lecture paper. There, you can find that the concept is really so useful in explaining various types of phenomenon. I don't want to repeat the examples, but perhaps one example is worthy of more exploration - phone - as it relates more to students' daily life. They may not be touched by the bank run example but they may be touched by the "phone" example.

   When Dybvig mentioned "phone" in the paper, he refers to telephone or some internet-based phones. But I think the logic can also be applied to chat apps, and nowadays students may use chat apps more frequently than traditional phone. That's why I pick up this example and develop from it.

   But let's still start from traditional phone. This is a typical example in the economics of technology adoption. 

   Yes, today we all have a phone each person. So, we forget that telephone was expensive about 100 years ago when it was invented, and so persuading people to buy it was not really an easy job. In the past, telephone was expensive and only companies, not individuals, would buy it. Later, telephones were bought on family basis, not on individual basis. Mobile phone is indeed a very late invention. 

   Anyway, the logic of promoting phone use is the same, for companies, families or individuals. The cost is not insignificant. It must be valuable enough so that people may buy it. How valuable a telephone would be to a company, family, or individual? This depends on how many other people use telephone. Phone is used for calling others and receiving calls from others. If many other people use it, I can call many others, and many people may call me. If few people use it, I can call only few people, and few people may call me. 

   So, you can see: the incentives to use it is high when many have used already; but the incentive is low when not many have used it. The problem is: how can you make a thing used by many when it is newly introduced? Normally, people adopt new product only slowly and gradually. But a slow adoption path is detrimental to phone use. You don't have reasons to use it as few uses it, and so do others. Telephone did take a long period of time to become a popular device globally.

   Well, perhaps all these are history. Now all people have phones. But we may think about what happens to a similar product - chat app. There are many such products available indeed: WhatsApp, WeChat, Telegram, Line, Signal, Viber, Facebook Messenger, Snapchat, Hangouts, etc. As they are used for communications, they share the same characteristics and problems with telephone. When many people use an app, it is more valuable. When few uses it, it is not valuable. It is particularly obvious when you think about group chats, a function not normally used in phone. 

   Although one can use more than one app, actually many apps, in one location, it is normally only one or two app dominates the market. For example, WeChat is popular among Chinese while Line is popular in Japan and Korea. 

   Why is this the case? Perhaps you can now easily figure out. It is multiple equilibria. Either there are many people in a community using an app, or there are few using it. Why? It is because the app is either very useful (many use it) or not useful (few use it). So, there are two equilibria: the high-use equilibrium and low-use equilibrium. 

   Well, we have learned that the implications of multiple equilibria are great. As either good or bad equilibrium may be realized, it is important to know how the good one can be attained. Bank run is a bad equilibrium. It can be prevented. Nowadays we have much much fewer bank runs. Banking regulations and deposit insurance may be the key factors behind. 

   What about chat apps?

   From the app developer's perspective, the high-use equilibrium is a good equilibrium while the low-use equilibrium is bad. Of course, all app developers want to reach the good equilibrium but not all of them can realize their dreams. Equilibrium is self-enforcing. Once you reach it, it is difficult to move away (as adjustment normally will take you go back to it). Hence, an app developer would want its app to be used by as many people as possible at the initial stage. For common products, reducing price is a typical method to attract more users. But in the internet world, zero subscription fee is already the norm. So, it is a difficult job for app developers to attract more people. They need to introduce non-price attractive points. But anyway, as the rewards of success is also huge (dominating the market), there will be no lack of talents exploring the methods in this world.