The paper examines how installed base and compatibility affect innovation, product preannouncements, and predation. It analyzes the private and social incentives for adopting a new technology incompatible with the installed base. Compatibility benefits are central in many industries, arising from interchangeability of complementary products, ease of communication, and cost savings from standardization. When compatibility is important, the installed base of durable goods or training can influence the likelihood and desirability of innovation. The paper discusses two models: one where new users build the network and another where existing users switch. In both models, network externalities can lead to inefficiencies. For example, "excess inertia" occurs when users are reluctant to switch to a superior technology due to the installed base. Conversely, "excess momentum" occurs when early adopters of a new technology create incompatibility, leading to inefficient adoption. The paper also explores anticompetitive behaviors such as product preannouncements and predatory pricing. Product preannouncements can prevent a bandwagon effect, while predatory pricing can deter entry by threatening temporary price cuts. These behaviors can reduce welfare, even if they are not explicitly anticompetitive. The analysis shows that network externalities can lead to inefficiencies in technology adoption, and that preannouncements and predation can be used strategically to influence market outcomes. The paper concludes that these issues are important for understanding the dynamics of innovation and competition in industries with significant network effects.The paper examines how installed base and compatibility affect innovation, product preannouncements, and predation. It analyzes the private and social incentives for adopting a new technology incompatible with the installed base. Compatibility benefits are central in many industries, arising from interchangeability of complementary products, ease of communication, and cost savings from standardization. When compatibility is important, the installed base of durable goods or training can influence the likelihood and desirability of innovation. The paper discusses two models: one where new users build the network and another where existing users switch. In both models, network externalities can lead to inefficiencies. For example, "excess inertia" occurs when users are reluctant to switch to a superior technology due to the installed base. Conversely, "excess momentum" occurs when early adopters of a new technology create incompatibility, leading to inefficient adoption. The paper also explores anticompetitive behaviors such as product preannouncements and predatory pricing. Product preannouncements can prevent a bandwagon effect, while predatory pricing can deter entry by threatening temporary price cuts. These behaviors can reduce welfare, even if they are not explicitly anticompetitive. The analysis shows that network externalities can lead to inefficiencies in technology adoption, and that preannouncements and predation can be used strategically to influence market outcomes. The paper concludes that these issues are important for understanding the dynamics of innovation and competition in industries with significant network effects.