Do Network Externalities Increase Customer’s Recommendation to Others? Empirical Comparative Study of Luxury and Necessity Products?

Abstract

Network externalities are an important way for firms to gain competitive advantage. Based on the theory of network externalities, this paper empirically compares the effects of network externalities on customer recommendation between luxury and necessity products. To verify the hypothesis, data from 539 consumers were collected. The empirical results showed that for both luxury and necessity products, direct network externalities have a positive impact on customer recommendation, while indirect network externalities have a negative impact on customer recommendation. This study extends the theory of network externalities and offers some practical implications.