The next-gen DVD war between HD-DVD and Blu-ray is over, and Blu-ray won. Now Engadget reports that Blu-ray player retail prices are increasing. This is not really surprising. In a market like this that is dominated by network effects, there is typically strong competition for the market in the early stages. Then a dominant standard emerges and can raise prices to make profits until the next new technology comes along.

If you only focus on the latter stages, it can look like a bad deal for consumers. However, taken as a whole (over time), competition may be no less intense than in other markets. When making an assessment of consumers’ welfare, we should consider those who bought early at a low price as well as those who buy later at a higher price. On the other hand, those who buy early also run the risk of picking the wrong standard and getting stranded. Anyway, my point is that to make a judgment about intensity of competition and consumer welfare in these markets we need to take a long-run perspective.