NDLI: Peer influence in network markets: a theoretical and empirical analysis

Content Provider	Springer Nature Link
Author	Henkel, Joachim Block, Jörn
Copyright Year	2013
Abstract	Network externalities spur the growth of networks and the adoption of network goods in two ways. First, they make it more attractive to join a network the larger its installed base. Second, they create incentives for network members to actively recruit new members. Despite indications that the latter “peer effect” can be more important for network growth than the installed-base effect, it has so far been largely ignored in the literature. We address this gap using game-theoretical models. When all early adopters can band together to exert peer influence—an assumption that fits, e.g., the case of firms supporting a technical standard—we find that the peer effect induces additional growth of the network by a factor. When, in contrast, individuals exert peer influence in small groups of size n, the increase in network size is by an additive constant—which, for small networks, can amount to a large relative increase. The difference between small, local, personal networks and large, global, anonymous networks arises endogenously from our analysis. Fundamentally, the first type of networks is “tie-reinforcing,” the other, “tie-creating”. We use survey data from users of the Internet services, Skype and eBay, to illustrate the main logic of our theoretical results. As predicted by the model, we find that the peer effect matters strongly for the network of Skype users—which effectively consists of numerous small sub-networks—but not for that of eBay users. Since many network goods give rise to small, local networks, our findings bear relevance to the economics of network goods and related social networks in general.
Starting Page	925
Ending Page	953
Page Count	29
File Format	PDF
ISSN	09369937
Journal	Journal of Evolutionary Economics
Volume Number	23
Issue Number	5
e-ISSN	14321386
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2013-02-06
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Network markets Peer influence Diffusion Technology adoption Social networks Economic Theory Microeconomics Economic Growth R & D/Technology Policy Entrepreneurship
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics Business, Management and Accounting

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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