Estimating Potential Size of Markets Characterized by Three Types of Network Effects

Abstract

Few studies in the literature of network effects have guided firms to estimate the potential size of a market. No study, as we know, has used various types of network effects in addressing this issue. This paper thus proposes a model for estimating the potential size of markets characterized by three types of network effects-accelerating, stable, and decelerating-in three types of markets: receptive, stable, and resistive. This study found that (1) receptive and stable markets with accelerating network effect will result in a very large market size; (2) receptive markets with stable network effect will also result in a very large market size; (3) stable and resistive markets with decelerating network effect will result in a constrained market size; and (4) resistive markets with stable network effect will also result in a constrained market size.