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Experimental Evidence on Product Adoption in the Presence of Network Externalities

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  • Sujoy Chakravarty

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Abstract

The benefits accruing to a purchaser of a product due to the existing base of consumers of the same or compatible products are known as network externalities. This paper studies Katz and Shapiro's (1986) model of network externalities in an experimental setting. Two sellers choose prices for competing technologies sold to two groups of four buyers purchasing sequentially in two stages. The results are qualitatively consistent with Katz and Shapiro's equilibrium predictions. In certain sessions over three-quarters of first stage buyers purchase the more expensive technology anticipating that later arriving buyers will also buy this technology. In periods where a strong network has been established for a technology in the first stage, over 80 percent of second stage buyers buy that technology, even though in most cases it is priced higher. The data, however, differ from the point predictions of the model. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Sujoy Chakravarty, 2003. "Experimental Evidence on Product Adoption in the Presence of Network Externalities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3), pages 233-254, December.
  • Handle: RePEc:kap:revind:v:23:y:2003:i:3:p:233-254
    DOI: 10.1023/B:REIO.0000031367.79009.9b
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    Cited by:

    1. Vincent Mak & Rami Zwick, 2010. "Investment Decisions and Coordination Problems in a Market with Network Externalities: An Experimental Study," Post-Print hal-00911829, HAL.
    2. Weiss, Avi & Etziony, Amir, 2015. "The role of critical mass in establishing a successful network market: An experimental investigationAuthor-Name: Ruffle, Bradley J," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 101-110.
    3. Bradley J. Ruffle, Avi Weiss, Amir Etziony, 2015. "The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation," LCERPA Working Papers 0092, Laurier Centre for Economic Research and Policy Analysis, revised 12 May 2015.
    4. Natalie Svarcova & Petr Svarc, 2008. "Technology adoption and herding behavior in complex social networks," Working Papers IES 2008/07, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2008.
    5. Christopher Snyder, 2003. "Introduction to the 2003 International Industrial Organization Conference Special Issue," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3), pages 175-177, December.
    6. 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.
    7. Tomasz Kopczewski & Michał Krawczyk & Przemysław Kusztelak, 2013. "Enforced compatibility and control of switching costs in markets with network externalities: an experiment," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 35.

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