Intellectual Property Rights v. Network Externalities

You can't proceed very far in any discussion on innovation without the issue of intellectual property rights raising its head. Today's Daily Times from Pakistan has a very interesting article from Joseph E. Stiglitz, a Nobel laureate in economics.

Stiglitz cites Microsoft as an example of how it can be very difficult to "dislodge" incumbent firms once they have established a "monopoly" position, despite innovators nipping at their heels. I would say that the Microsoft case is an exception, and has more to do with the the effects of network externalities than innovation.

Everybody picks on Microsoft! How come you never hear about how Microsoft struggled with its X-Box product launch, partly because of network externalities in the gaming industry? Of course, it was Sony that was difficult to "dislodge" here.

For most industries, where network externalities don't exist, there are always areas left unattended by incumbents.