Schumpeterian Competition and Consumer Networks: An Exploration of the Internet Access Market

Abstract

Markets undergoing fast-paced product evolution impose a significant informational demand on consumers. They may have to decide among relatively heterogeneous offers while lacking the knowledge required for a fully assessed choice of suppliers. In this case, one important information source is the social network wherein the consumer is immersed, by means of the word-of-mouth (WoM) phenomenon. We test WoM as a possible cause for the variegated market competition outcomes observed in real markets by investigating one prominent hi-tech case, the internet access service, in which the disparity among countries does not seem adequately tackled by the usual economic explanations. Applying an innovative approach, based on agent-based simulation and synthetic graph generation, we propose a model that is able to explain the connections between inter-firm competition and consumer decision process. The model robustly demonstrates the relevant effects of WoM on the organization of the industry in most situations. The results suggest that the competitive configuration of some real markets would be unlikely with-out the influence of WoM.