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Social Interactions, Network Fluidity and Network Effects

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Abstract

This paper asks how much the strength of network effects depends on the stability and structure of the underlying social network. I answer this using extensive micro-data on all potential adopters of a firm's internal video-messaging system and their subsequent video-messaging. This firm's New York office had to be relocated due to the terrorist attacks of 2001 which lead to a physical re-organization of teams in that city but not in other comparable cities. I study the consequences of this disruption for adoption of video-messaging and the size of network effects. I find evidence that generally network effects are based on direct social interactions. Potential adopters react to adoption only by people they wish to communicate with: They are not affected by adoption by other people. However, when there is a disruption to the social network and communication patterns become less predictable, users become more responsive to adoption by a broader group of users.

Suggested Citation

  • Catherine Tucker, 2008. "Social Interactions, Network Fluidity and Network Effects," Working Papers 08-30, NET Institute.
  • Handle: RePEc:net:wpaper:0830
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    File URL: http://www.netinst.org/Tucker_08-30.pdf
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    References listed on IDEAS

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    1. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August.
    2. Gale, Douglas & Kariv, Shachar, 2003. "Bayesian learning in social networks," Games and Economic Behavior, Elsevier, vol. 45(2), pages 329-346, November.
    3. Edward P. Lazear, 2000. "The Power of Incentives," American Economic Review, American Economic Association, vol. 90(2), pages 410-414, May.
    4. Stephen Ryan & Catherine Tucker, 2012. "Heterogeneity and the dynamics of technology adoption," Quantitative Marketing and Economics (QME), Springer, vol. 10(1), pages 63-109, March.
    5. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-138, February.
    6. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    7. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
    8. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
    9. Arun Sundararajan, 2004. "Local Network Effects and Network Structure," Industrial Organization 0412011, EconWPA.
    10. Eduardo S. Schwartz & Carlos Zozaya-Gorostiza, 2003. "Investment Under Uncertainty in Information Technology: Acquisition and Development Projects," Management Science, INFORMS, vol. 49(1), pages 57-70, January.
    11. Catherine Tucker, 2008. "Identifying Formal and Informal Influence in Technology Adoption with Network Externalities," Management Science, INFORMS, vol. 54(12), pages 2024-2038, December.
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    Cited by:

    1. Elsner, Wolfram & Schwardt, Henning, 2012. "Trust and Arena Size. Expectations, Trust, and Institutions Co-Evolving, and Their Critical Population and Group Sizes," MPRA Paper 40393, University Library of Munich, Germany.
    2. Elsner, Wolfram & Heinrich, Torsten, 2009. "A simple theory of 'meso'. On the co-evolution of institutions and platform size--With an application to varieties of capitalism and 'medium-sized' countries," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 843-858, October.

    More about this item

    Keywords

    Network Effects; Local Networks; Stability; Option-Value;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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