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Peer Influence in Network Markets: An Empirical Investigation

Author

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  • Block, J.H.
  • Koellinger, Ph.D.

Abstract

We 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.

Suggested Citation

  • 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 University Rotterdam.
    • Handle: RePEc:ems:eureri:10540
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    Cited by:

    1. Xiong, Hang & Payne, Diane & Kinsella, Stephen, 2016. "Peer effects in the diffusion of innovations: Theory and simulation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 1-13.
    2. Joachim Henkel & Jörn Block, 2013. "Peer influence in network markets: a theoretical and empirical analysis," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 925-953, November.

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    More about this item

    Keywords

    Hazard Rate Model; Innovation Diffusion; Instant Messaging; Network Markets; Peer Influence;
    All these keywords.

    JEL classification:

    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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