Effects Of Network Externalities Research Articles

Dynamic Analysis of the Effect of Network Externality in Vertically Differentiated Market

Dynamic Analysis of the Effect of Network Externality in Vertically Differentiated Market

Cooperative Advertising in a Two-Stage Supply Chain with Network Externalities

A two-stage game is developed with network externalities where, besides pricing decisions, the retailer and manufacturer can determine their advertising investments and advertising participation rates for each stage. In addition to the full cooperation advertising model, three part cooperation advertising models are established. We develop propositions and insights from the comparison of these models. Our main findings are as follows: 1) the equilibrium solutions critically depend on the effects of network externalities; 2) the optimal choice in a two-stage game is to achieve full cooperation; and 3) a second-best choice for the manufacturer is to share the retailer’s advertising in the first stage. Our research results have guiding significance for supply chain member’s decision-making in local advertising practice.

The effects of human-game interaction, network externalities, and motivations on players’ use of mobile casual games

PurposeThe purpose of this paper is to empirically examine the factors that influence the acceptance and use of mobile casual games.Design/methodology/approachA theoretical model is proposed based on the theory of reasonable action, the uses and gratifications theory, the network externalities (NEs) paradigm and the human–computer interaction literature. An empirical study was conducted through an online survey of mobile casual gamers in Spain, using a convenience sample. The proposed model was tested by an analysis of the collected data through a structural equation model using the partial least squares method.FindingsThe results indicate that human–mobile game interaction and NEs have a significant indirect impact on intention to play (IP), through utilitarian, hedonic and relational motivations. In addition, the full mediation effect of attitude was found between these constructs and IP, which is a very important determinant of actual use.Originality/valueThis study is among the few that focuses on users’ acceptance of mobile games apps, the features of which differ significantly from personal computer and console games. It highlights the effects of human–game interaction and NEs on the adoption of mobile casual games. Hence, the study contributes to the theoretical and practical understanding of the factors that lead users to adopt an entertainment mobile application.

Rents: How Marketing Causes Inequality (Chapter 1)

This working paper contains the introduction and first chapter of a forthcoming book on the relationship between marketing and inequality. I argue that the dramatic rise of income inequality since 1970 has largely been caused by advances in marketing. Marketers have become better at creating and exploiting market distortions in legal ways. The legal system, in principle, prevents the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools. This chapter offers an introduction to a new, general theory of marketing. Although marketing is meant to improve markets by bringing products to the right customers, it often does the opposite—creating “value” to businesses by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, exploiting psychological biases, creating network externality effects, or preventing price wars. Over the time span 1970–2015, the impact of marketing on the economy has steadily increased. Few markets have not been turned into less competitive ones by marketers, trained at modern business schools. This has significantly increased the amount of artificial profits (“rents”) in the economy.

Impact of modern communication infrastructure on productivity, production structure and factor demands of US industries: Impact revisited

This study investigates the contribution of modern communication infrastructure characterized by high speed broadband access network on the productivity growth, production structure and factor demands for US industries and for the aggregate economy. To evaluate such contribution, we modify the traditional cost function by incorporating communication infrastructure as input in production process in conjunction with other public infrastructures. The network externality and spillover effect of broadband access technology are captured by introducing broadband penetration rate as a shift factor in industry level production function. Empirical results show that the increased use of modern communications infrastructure increases the productivity of all industries with wide variations across industries. Estimated impacts on input demands show that increase in use of communications infrastructure service saves labor and materials and increase the demand for private capital. Finally, aggregate social rate of return on such investment has been estimated for policy implications.

What makes MOOC users persist in completing MOOCs? A perspective from network externalities and human factors

This study investigated how network externalities affect users' persistence in completing massive online open courses (MOOCs) through the mediation of human factors. 346 students from a public university were recruited into the study. The data were collected using a survey and analyzed by partial least square structural equation modeling (PLS-SEM). The findings indicate that users' persistence in completing MOOCs was a function of network benefit, user preference, and motivation to achieve. Network benefit, which was strongly predicted by network size (direct network externalities) and perceived complementarity (indirectly network externalities), also indirectly influenced users' persistence in completing MOOCs through user preference and motivation to achieve. Furthermore, this study found that the duration of MOOC usage made a significant difference in the effect of network externalities on users' persistence in completing MOOCs. For instance, user preference had a stronger influence on users' persistence in completing MOOCs for one-year users than above-one-year users, while motivation to achieve in MOOCs had a stronger effect on users’ persistence in completing MOOCs for above-one-year users than one-year users. This study could benefit MOOC providers and researchers seeking to improve the retention and completion rates of MOOCs.

The role of negative network externalities in SNS fatigue

PurposeThe purpose of this paper is to explore whether negative network externalities would contribute to social networking site (SNS) fatigue and how this mechanism works.Design/methodology/approachA research model was proposed integrating two dimensions of negative network externalities and three dimensions of mediators (impression management concern, privacy concern, and social overload) to indicate how negative network externalities affect users’ SNS fatigue. Online questionnaires were adopted to collect data, and 307 valid samples were analyzed by structural equation modeling approach.FindingsThe findings indicate that negative network externalities have significant indirect effects on SNS fatigue through impression management concern, privacy concern, and social overload, and among the three dimensions, privacy concern plays a more important role.Research limitations/implicationsThis study offers a solidly grounded and well-demonstrated conceptual model that not only indicates the effects of negative network externalities in the context of SNS but also facilitates the understanding of SNS fatigue. Some theoretical and practical implications are also provided.Originality/valueThis study is novel in exploring users’ SNS fatigue a perspective of negative network externalities. Besides, the mediating roles of impression management concern, privacy concern, and social overload have been employed to indicate the formation of SNS fatigue.

Efficiency-centered, innovation-enabling business models of high tech SMEs: Evidence from Hong Kong

High-technology small and medium-sized enterprises (SMEs) are compelled to innovate to differentiate themselves from their competitors but at the same time be efficient, as they do not have economies of scale enjoyed by larger organizations. This qualitative study explores this paradoxical challenge faced by Hong Kong SMEs in designing their business model to strike such a balance. In doing so, it investigates the competencies of these firms in technology management and their innovation practices. It is found that third-party technologies that subscribe to international standards play a prominent role in the SME’s technology repertoire, as they are keen to leverage upon the effects of network externalities and other positive spillover effects. Although the firms’ business models enable product innovation, they also need to take efficiency into account to ensure that marketing and customer-intelligence are swiftly incorporated into their technology management and product development processes resulting in cyclic, incremental innovations. Our findings of efficiency-centered, innovation-enabling business models provide a more nuanced view of business model design in that efficiency and innovation need not be mutually exclusive. Four modalities of such business models are also identified: Focused, complementary, integrated innovation, and e-commerce-supported. These designs play an important role in enhancing product quality and performance, reducing time to market, developing new markets, and improving customer relationship and satisfaction.

An agent-based simulation model for IING’s adoption from a perspective of kinetic energy and potential energy

PurposeInternet-based intangible network good (IING) has revolutionized multiple industries in recent years. This paper aims to reveal the laws of consumer’s decision-making on IING from a perspective of kinetic energy and potential energy.Design/methodology/approachIn this paper, 4 aspects and 17 factors influencing IING adoption were generalized. Based on the theory of social physics, an agent-based simulation model, introducing physical energy theory to depict consumer’s decision-making, was built. An agent’s kinetic energy reflects the agent’s perceived effect of mass media on the agent’s decision-making on IING adoption. An agent’s potential energy reflects the agent’s perceived effect of social interactions on the agent’s decision-making on the adoption of IING. An agent’s final energy is the sum of the kinetic energy and potential energy, which reflects the agent’s final decision.FindingsSome factors mainly influence the diffusion velocity, while other factors have a dramatic impact on both diffusion velocity and diffusion scale. The agent’s personality can make a difference at the early and middle stages of IING adoption, but a faint impact at the later stage because of the effects of network externalities and word of mouth. There is a critical value of the number of initial adopters which can dramatically speed up IING adoption.Practical implicationsThis study provides new insights for firms on the effects of factors influencing consumers’ decision-making on IING adoption.Originality/valueThis paper defines a new kind of innovation, IING, and generalizes IING’s special characteristics. As a new application of social physics, the physical energy theory has been creatively introduced to depict consumer’s decision-making on IING adoption. A kinetic and potential energy model of IING adoption has been built. Based on simulation experiments, new insights of IING adoption have been gained.

Return policy and supply chain coordination with network-externality effect

The benefits of a consumer return policy have been extensively studied in extent literature. This paper explores the potentially damaging impact of a return policy on the retailer. We develop an analytical framework and examine the economic impact of consumer return among consumers, retailer and supply chain. We distinguish three network-externality (NE) cases: no network externality, fixed network-externality and variable network-externality contingent on return amount to discuss the retailer’s selling price, refund and inventory policies. Our analysis derives the optimal policies and shows that they take the form of contingence model in which the policies depend on consumer initial return and NE return. We also examine the influence of the consumer return NE effect on buy-back contracts of the supply chain and show that while the traditional buy-back contract fails to coordinate the supply chain, the NE effect does not render the differentiated buy-back contract less effective. Finally, we extend our study to a heterogeneous consumer case.

Optimal contract design for cloud computing service with resource service guarantee

The optimal contract design for cloud computing service with resource guarantee under the consideration of resource redundancy and network externality is studied in this research. A model in which a service provider determines joint pricing and resource allocation decisions is constructed by proposing two types of contracts with different service-level agreements (SLAs). The SLA of each contract describes the price and associated penalty if the provider cannot provide the resource requested by the customers. Optimal pricing and resource allocation decisions as well as the equilibrium contracts of the service provider are analyzed based on the dynamics of the model characteristics. We found that optimal contract design is sensitive to both service levels and customers’ beliefs of compensation ratio when the requested resource is unfulfilled. Furthermore, service providers should evaluate the trade-off between benefit of price discrimination and effect of network externality when determining the optimal contract design.

Examining the effects of network externalities, density, and closure on in-game currency price in online games

PurposeMassively multiplayer online role-playing games (MMORPGs) create quasi-real social systems in which players can interact with one another, and quasi-real economic systems where players can consume and trade in-game items with virtual currency. The in-game currency price, an important indicator of a virtual economy, is highly contingent on players’ behavioral interaction in MMORPGs. The purpose of this paper is to adopt a network perspective to examine how topological characteristics of social networks in an MMORPG, namely, network externalities, density, and closure, would exert impacts on the in-game currency price.Design/methodology/approachPlayers’ behavioral data were collected from a popular MMORPG in China on a weekly basis for 52 weeks. With a time series analytical approach, the empirical model for the price function of in-game currency was estimated with vector autoregression.FindingsThe results show that the number of core avatars and network density are positively associated with in-game currency price, while network closure has a negative effect on in-game currency price. However, in-game currency price is found to have no significant relationship with the trade volume of the currency.Originality/valueThis study fills in an important research gap by investigating factors influencing the in-game currency price of MMORPGs from a network perspective, which contributes to the existing literature of network effects and advances our understanding about how players’ interaction will influence the dynamics of a virtual economy. The findings could offer useful insights for online game companies to better understand their players’ social interaction and consumption behavior.

First-Mover Advantages Versus First-Mover Benefits in Network-Based Industries

We present a theoretical framework to address the inherent endogeneity problem in entry-timing research by distinguishing the concept of first-mover benefits (FMB) from first-mover advantages (FMA), the former being counterfactual and (usually) unobserved pure treatment effects and the latter being actual observed combination of treatment and selection effects. Our formal economic model analyzes this distinction, making predictions about empirical identification biases arising from using FMA as a proxy to estimate FMB in the context of an industry with network externalities, and also about how various contingency factors (complementary assets, demand uncertainty, market growth, and rivalry intensity) influence the effect of network externalities on both FMA and FMB.

Open Source Technologies

Abstract. We focus on a contestable market with network externalities with an incumbent and an entrant. The incumbent, unlike the entrant, already has an installed base of consumers. We look at decision situations of firms regarding how proprietary they want to make their technology , either through patent protection or through development in open source systems (OSS). We explicitly model the direct and indirect effects of network externalities. For example, more software companies are willing to produce programs for an operating system (OS) if it has a larger consumer base. This increased competition could lead to an improvement of the quality of the OS. The model predicts that using open source technologies is likely to enhance the rate of R&D , and consequently the quality of the product.. An incumbent that would choose this strategy is likely to deter entrance of a newcomer because it can play out its advantage of a larger network.

Social learning and network externalities in decision making

PurposeThis paper aims to identify the effects of social learning and network externalities by conditioning on product quality and early sales momentum. This approach is demonstrated using film sales data.Design/methodology/approachThis study used econometric modeling approach.FindingsIt was found that both social learning and network externalities have significant and comparable impacts on film choice. We show that the relative effects of network externalities and social learning in the film market are robust to different momentum and quality definitions and to alternative estimation methods.Originality/valueScholars have long argued that social learning plays a key role in new product diffusion. In some product categories, consumer choice may also be influenced by network externalities, meaning that purchasing popular products may provide the consumer utility above and beyond that derived from product usage directly. We propose a novel identification approach to help quantify the relative magnitude of these two effects on new product sales.

An evolutionary stable strategy for retailers selling complementary goods subject to indirect network externalities

A two-population evolutionary game model is constructed for retailers and used to investigate the effect of indirect network externalities (INEs) and product complementarity on the strategic choice of marketing objective of the retailers. The results show that their strategic choice of marketing objective is correlated with market reservation price (MRP) when the strength of the INE is low. When the MRP is low, the retailers tend to adopt a strategy of profit maximization. As MRP increases, low-cost retailers adopt a strategy of revenue maximization instead of profit maximization to maximize revenue at an earlier stage than high-cost retailers. However, when the strength of the INE is high, retailers only choose a strategy of revenue maximization as their marketing objective. The probability that a retailer uses a revenue maximization strategy increases as the strength of the INE grows, and product complementarity increases, when there is an equilibrium between two pure marketing objective strategies. An optimal preference ratio for retailers may exist when the strength of INE is found to be not large enough. Numerical examples reveal that the degree of preference of retailers to maximize profit is shown to be negatively correlated with both INE and product complementarity. On the other hand, their profits are positively correlated with both of these factors.

How WeChat can retain users: Roles of network externalities, social interaction ties, and perceived values in building continuance intention

An increasing number of users join and immerse in Social Network Services' (SNS) virtual spaces, but many users quit using these services as well. SNS managers must enhance users' continuance intention. Based on a survey of WeChat users, this research examined the effects of direct and indirect network externalities on users' perceived values (including social value, information value, emotional value, and hedonic value) and continuance intention. We conducted data analysis with structural equation modeling (SEM). Results confirmed that social interaction ties mediate the effect of network externalities on the four types of perceived values. Meanwhile, among the four types of perceived values, only social value and hedonic value influence continuance intention.

Customer social network affects marketing strategy: A simulation analysis based on competitive diffusion model

Abstract To explain the competition phenomenon and results between QQ and MSN (China) in the Chinese instant messaging software market, this paper developed a new population competition model based on customer social network. The simulation results show that the firm whose product with greater network externality effect will gain more market share than its rival when the same marketing strategy is used. The firm with the advantage of time, derived from the initial scale effect will become more competitive than its rival when facing a group of common penguin customers within a social network, verifying the winner-take-all phenomenon in this case.

Competition in wearable device market: the effect of network externality and product compatibility

The rapid growth in consumer adoption of wearable devices has garnered the attention of both practitioners and academia. Competition in the wearable device market is both substantial and complicated. In this study, we investigate the impact of network externality on wearable device competition in a two-dimensional product differentiation model. We consider a market that has a broad array of products (horizontal differentiation) and various quality levels (vertical differentiation). We study two types of network externalities according to the product compatibility in two types of market structures. Our model indicates that firm profits are decreased by network externalities in horizontal dominance. Network externality also increases (decreases) the higher-quality (lower-quality) firm's profit in vertical dominance. Moreover, firms should ensure that their products are incompatible with those of rivals when network externality is large, and they should release compatible products when network externality is small in horizontal dominance. Firms should always ensure that their products are compatible with those of competitors in vertical dominance.

Contracting for Competitive Supply Chains under Network Externalities and Demand Uncertainty

Based on network externalities and demand uncertainty environment, supply chain competition model is built; we identify the valid mechanism for the alternative range of profit-sharing contracts and also analyze the effect of product substitutability coefficient and network externalities on the alliance and profit-sharing contract. The results show that the vertical alliance contributes profit improvement to both the manufacturer and the retailer when the impact of network externalities on the product substitutability is not strong. However, vertical alliance will be out of operation when the effect of network externalities on the product substitutability is strong.