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Coordination and Critical Mass in a Network Market: An Experimental Investigation

Author

Listed:
  • Bradley J. Ruffle

    () (Department of Economics, Ben-Gurion University of the Negev)

  • Avi Weiss

    () (Department of Economics Bar-Ilan University)

  • Amir Etziony

    () (Hewlett-Packard)

Abstract

A 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.

Suggested Citation

  • 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.
  • Handle: RePEc:bgu:wpaper:1001
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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. 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_4), pages 233-254, December.
    3. Masiliƫnas, Aidas, 2017. "Overcoming coordination failure in a critical mass game: Strategic motives and action disclosure," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 214-251.
    4. 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.
    5. Romero, Julian, 2015. "The effect of hysteresis on equilibrium selection in coordination games," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 88-105.

    More about this item

    Keywords

    experimental economics; network goods; coordination game; critical mass;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other

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