Case study: The VHS vs. beta standards battle

For a number of years after the introduction of Beta in 1976, VHS and Beta had a fierce battle for market domination. Ohashi (2003) studied this battle in the US video cassette recorder (VCR) market between 1976 when Sony first launched Beta and the mid-eighties when VHS commanded a market share of over 90 %. However, according to results from empirical work by Ohashi (2003), the format battle was all but over in 1981-1982. By thi:s time, VHS had already overcome Beta's initial first mover advantage and network elsects were strongly working in favour of VHS. Interestingly, Ohashi's results show that network cffccts initially werc unimportant, as VCR wcrc mainly uscd for rccording purposcs. Nctwork cffccts only grevw stronger with the development of a rental market of pre-recorded videos at the beginning of the 1980s. These pre-recorded videos are complementary products to the VCR machines and the availability of these products is therefore important to consumers when making purchasing decisions for VCR machines. Availability of pre-recorded video titles is again interde- pendent with the installed base of VCR machines, as it is more beneficial for content providers and video rental stores to use a more widely adopted system

By the time Sony realised that it had fallen behind, market positions wcrc alrcady cntrenched and its ncw stratcgy to movc into mcdium and high-value VCR in 1983 was not able to change this. As Ohashi's result ohr cahough leta'k pnodist charcerisie nef were regarded favourably by consumers after this up-market move and were superior to VHS's. In a counterfactual simulation, Ohashi finds that Sony would have been able to win the standard battle if it had used strategic pricing in the crucial years 1978-1981 and had incurred initial losses to grow its installed base of consumers and corner the market