Peer Influence in Network Markets: An Empirical Investigation
AbstractWe analyze the effect of peer influence on the diffusion of an innovative network good. We argue that the adopters of a network good have an incentive to convince others to purchase the same product because their utility depends on the number of other users. This peer-effect influences individuals’ adoption decisions alongside the more familiar installed-base-effect, based on the individual’s own insight that a larger number of installed units increases his/her benefit of adopting. We test empirically which effect dominates with Instant Messaging, an innovative network good. We arrive at surprising results with far-reaching implications for research and management. The diffusion of Instant Messaging was to a large extent driven by the peer-effect, but the installed base-effect seemed to play no role. We perform our estimation with a discrete time hazard rate model that controls for unobserved heterogeneity.
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Bibliographic InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 59 (2007)
Issue (Month): 4 (October)
Hazard Rate Model; Innovation Diffusion; Instant Messaging; Network Markets; Peer Influence;
Other versions of this item:
- Block, J.H. & Koellinger, Ph.D., 2007. "Peer Influence in Network Markets: An Empirical Investigation," ERIM Report Series Research in Management ERS-2007-063-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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