Coordination and Critical Mass in a Network Market: An Experimental Investigation
AbstractA network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. We introduce an experimental paradigm to study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass.
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Bibliographic InfoPaper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2010-03.
Date of creation: Feb 2010
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Experimental economics; network goods; coordination game; critical mass;
Other versions of this item:
- Bradley J. Ruffle & Avi Weiss & Amir Etziony, 2010. "Coordination and Critical Mass in a Network Market: An Experimental Investigation," Working Papers 1001, Ben-Gurion University of the Negev, Department of Economics.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-CBE-2010-05-29 (Cognitive & Behavioural Economics)
- NEP-COM-2010-05-29 (Industrial Competition)
- NEP-EXP-2010-05-29 (Experimental Economics)
- NEP-IND-2010-05-29 (Industrial Organization)
- NEP-NET-2010-05-29 (Network Economics)
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- Sujoy Chakravarty, 2003.
"Experimental Evidence on Product Adoption in the Presence of Network Externalities,"
Review of Industrial Organization,
Springer, vol. 23(3_4), pages 233-254, December.
- Sujoy Chakravarty, 2003. "Experimental Evidence on Product Adoption in the Presence of Network Externalities," Review of Industrial Organization, Springer, vol. 23(3), pages 233-254, December.
- Mak, Vincent & Zwick, Rami, 2010. "Investment decisions and coordination problems in a market with network externalities: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 759-773, December.
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