Positive Network Effects Research Articles

Research on Influence of Network Effect on Service Demand for Social Media Products and Optimization Strategy

In the digital era, social media platforms have emerged as fundamental tools for communication, information dissemination, and influence on consumer behavior, marking a significant shift in the landscape of both personal and professional interactions. The critical role of network effects, where the value of a service amplifies as its user base expands, is central to understanding this transformation. This paper delves into the impact of network effects on service demand within social media, identifying both the opportunities for growth and the challenges, such as platform saturation and misinformation. Through a structured exploration that includes case studies of leading platforms like Facebook, this research highlights the strategies employed to harness positive network effects while mitigating negative ones. The investigation reveals the dual nature of network effects and how they contribute to the rapid proliferation of social media, alongside presenting obstacles such as user retention and the quality of user-generated content. It further examines how platforms leverage data analytics, enhance user experience, and innovate to sustain growth and engage users effectively. The findings suggest that while network effects can drive platform expansion and engagement, they necessitate nuanced strategies to manage potential downsides.

Data and statecraft: why and how states localize data

AbstractThis paper explores the motives and mechanisms behind data localization implemented by states to protect data, which is essential to emerging technologies such as Artificial Intelligence. Despite the significant negative aspects of data localization for states, the practice has become increasingly prevalent, leading to the unexplored question of why states choose to implement it. This suggests that data localization is a form of economic means derived from digital technologies and employed by states to serve political objectives. Focusing on the data in platforms, the theoretical mechanism of data localization is captured in light of two factors: network perception and security externality. Network perception pertains to a state’s perception of the positive network effect generated by platforms, while security externality refers to a state’s consideration of the security implications in relation to the economic benefits derived from the positive network effect, serving the national interest in domestic and/or international contexts. To substantiate these theoretical propositions, the paper employs a comparative case study approach where Vietnam, Singapore, and Indonesia have been chosen as empirical cases based on the selection strategy. The paper bridges the concept of economic statecraft with digital technologies, fosters interdisciplinary discussions, and offers policy implications.

Free trial or no free trial: Optimal policy of electronic products with positive and negative network effects

The rapid development and widespread application of the new generation information technology has not only promoted innovation in traditional business models, but also has even created new business models and new industries. The free trial, as one of the new business models, has been utilized by major enterprises to advertise and promote their products in the expectation of receiving more attention from consumers, increasing the potential value of products. However, the accompanying problem of setting the number of lucky customers and free trial operation scheme properly should be handled urgently. In reality, the purchasing decision of the consumer is influenced by a variety of factors, such as reviews, trial campaigns. Meanwhile, consumers have positive and negative perceptions of products and activities, which could be transmitted to surrounding consumers. Consequently, this paper discusses the problem of the free trial policy for the electronic product by considering the positive and negative network effects. It is attempted to be solved both theoretically and empirically. The consumer network utility, demand and product profit models are proposed to solve the problem, which produces empirically testable hypotheses and Management propositions. Then, these hypotheses are tested and these management propositions are validated by utilizing real operational data from Lenovo Mall. The test and validation results indicate that there is a significant increase in the price and demand for products after the merchant taking the free trial. Moreover, although the operating costs of the merchant are increased, a much larger boost is provided by the free trial to the merchant in total profit. It is worthwhile considering the accuracy in identifying the valuable consumer, which the success of the free trial depends on.

Analysis of Network Effect Enhancement Method of Short-video Platform under the Background of MCN Mechanism Popularization - Taking Douyin as an Example

Recently, with the rapid development of Internet entertainment, Chinas Multi-Channel Network markets (MCN) has been expanding, and MCN have significant advantages in many aspects. Meanwhile, Douyin has also maintained a forward development trend since its launch. Therefore, the research topic is to explore how to enhance Network Effects of short video platform on Douyin in the context of the extensive MCN. During the research process, the necessity and scientific nature of Douyin + MCN is analyzed by SWOT analysis, and it is concluded that Douyin + MCN is a Positive Trans-Boundary Network Effect Model, which accords with the law of Winner-takes-all. Finally, countermeasures are proposed for the future challenges of Douyin + MCN. Therefore, in order to further expand Network Effect, Douyin should make use of MCN to achieve high-quality video content, seize the dominant position, control the content direction, appropriately subsidize MCN, balance the market development, encourage the development of small and medium-sized MCN, and avoid the situation of one or several dominant MCN. Besides, it is suggested to create a better creation environment, attract more users, and ultimately achieve the purpose of maximizing Network Effects.

Smaller Slices of a Growing Pie: The Effects of Entry in Platform Markets

Entry of new firms onto a platform has an ambivalent effect on the incumbent firms operating on the platform: the main tension lies between the negative effects of increased competitive pressure and positive indirect network effects. This paper empirically studies the net effect of these countervailing forces and its dependence on firm quality, using a quasi-exogenous shock on a large online platform. On average, market expansion favors incumbents, though the average effect masks substantial heterogeneity: high-quality incumbents experience significant increases in sales and revenue, whereas low-quality firms perform unambiguously worse. Lastly, the paper explores the main mechanisms and firms’ responses. (JEL D22, D85, L14, L15, L84)

The Open Prison of the Big Data Revolution: False Consciousness, Faustian Bargains, and Digital Entrapment

Although some scholars raise alarm about societal harm emerging from Big Data practices, critical social theory (CST) Information Systems research on the structures and dynamics driving Big Data practices is rare. In this research commentary, we interrogate how tech firms use social practices and platform design to strategically manipulate individuals into accepting datafication and data assetization that accrue positive data network effects for themselves and mostly negative data network effects (economic loss, social and privacy harm) for individuals. We draw on the ideas of Heidegger and Marcuse to critically question the Big Data paradigm in order to develop better understanding of the social implications for individuals and society. Using the concepts of false consciousness, digital entrapment, and Faustian bargains, we critically inquire into the Big Data practices that keep us tethered to digital platforms. Specifically, we interrogate sociomaterial structures that socially condition individuals into a digital habitus and to identify themselves as homo digitalis, who view all their “relations” (social and economic) as digital. This social conditioning reproduces a false consciousness that constricts our worldview, undermines our rational choices, and enables the risky compromises we make with tech companies that manipulate and exploit us with their increasingly oppressive Big Data practices and related dark patterns. We critically analyze the case of Microsoft Viva to provide an illustration of how mundane digital tools can condition our reality and entrap us into an open prison. We argue that if we do not critically interrogate our false consciousness of the digital and understand how digital giants colonize our social systems by structurally embedding Big Data practices, we will continue to be susceptible to manipulation and digital entrapment. Ongoing risky compromises with tech firms will erode the very foundations of the “good life,” freedom, liberty, and personal privacy, and they will institutionalize the open prison. The CST explanation we propose and the research agenda we outline are meant to encourage research into solutions to the digital entrapment problem.History: Suprateek Sarker, Senior Editor; Robert Gregory, Associate Editor.Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2020.0588 .

Empirical analysis of network effects in nonlinear pricing data

Network effects, i.e., an agent's utility may depend on other agents' choices, appear in many contracting situations. Empirically assessing them faces two challenges: an endogeneity problem in contract choice and a reflection problem in network effects. This paper proposes a nonparametric approach to tackle both challenges by exploiting restriction conditions from both demand and supply sides. We illustrate our methodology in the yellow pages advertising industry. Using advertising purchases and nonlinear price schedules from seven directories in Toronto, we find positive network effects, which account for a substantial portion of the publisher's profit and businesses' surpluses. We finally conduct counterfactuals to assess the overall and distributional welfare effects of the nonlinear pricing scheme relative to an alternative linear pricing scheme with and without network effects.

The network effects and spatial spillovers of transport accessibility on intra-metropolitan employment growth: Evidence from the Beijing metropolitan area, China

ABSTRACT The network effects and spatial spillovers of transport accessibility on local employment growth highlight the benefits of transport improvements that extend beyond the areas with newly invested transport infrastructure, which can be important for a better understanding of the land use effects of urban transport. Previous studies have largely ignored transport network effects and spillovers on intra-metropolitan employment growth. In this paper, we incorporate transport network analysis and spatial econometric techniques to examine the impact of transport accessibility on local employment growth in the Beijing metropolitan area from 1996 to 2018. Our results indicate significant positive transport network effects and the existence of spatial spillovers of transport accessibility on intra-metropolitan employment growth. As for the spatial spillovers, we argue that whether the spillovers of transport accessibility on nearby areas are positive or negative depends on the spatial scale and the types of economic activities and transport infrastructure. Our results show that the spillovers of highways are negative at the relatively small spatial scale and mainly for sectors with intensive demand for transport services, while rail transit imposes positive spillovers on the economy of regions around rail transit at the larger spatial scale and mainly for higher-order services.

Economic effects of interaction. The neglected economy of connectivity

PurposeWith a start in the observation that there is a large variation in how companies interact with each other, the paper aims to anlayse the economic consequences of this variation. As the more extensive interaction is costly, the variation also indicates a variation in the economic dimension.Design/methodology/approachThis is a conceptual paper.FindingsThree different economic streams can be identified. Firstly, the interaction costs can be reduced by taking advantage of time and scope. Interaction over time give opportunity to use some of the costs as investments through creation of relationships. By using the same counterpart for several products, scope can be used to reduce interaction costs. Secondly, developed business relationships can be used to create relation revenues. The counterparts can use each other for developing better solutions and for development of knowledge. Finally, the actors can also get positive network effects. One example is the joint development with third parties such as sub-suppliers or customer’s customer.Research limitations/implicationsThe discussion ends in two major implications. One is the central role of managers and the other the crucial role of economic deals. Managers are crucial both to identify relevant cost and revenue items as well as to exploit them. Deals are important as it is only with direct counterparts where there are monetary streams. In all other relationships, there is only indirect consequences.Originality/valueIt is obvious that the type of cost and revenue streams identified above will require new and different economic tools. A base for this is given here.

Optimal pricing policy in the presence of positive and negative network effects

Optimal pricing policy in the presence of positive and negative network effects

Equilibrium blockchain adoption strategies for duopolistic competitive platforms with network effects

The emerging blockchain technology has created many novel applications for platform operations in the sharing economy. This study develops an analytical model to assess whether two traditional platforms should utilize private blockchains as an operational strategy, and how their decisions depend on the technology’s characteristics and market conditions. Results indicate that the difference in service quality between the two platforms plays a critical role in blockchain adoption decisions. Specifically, when the service quality difference is significant, the platform with high service quality should adopt blockchain technology, whereas the other platform should not. When the service quality difference is not significant, both platforms should make identical decisions. This study is the first to theoretically analyze price competition and blockchain adoption between two platforms with positive network effects, providing useful managerial implications for competitive platform operations of the sharing economy.

Market-dependent preferences, positive and negative network effects and welfare

This article specifies the conditions on the utility function and on the cost function for which congestion or production overcapacity emerge in a market when information is perfect and prices are flexible. Consumers are of two types: Some appreciate a large production market, some do not. A typology underlines the shape of utility functions and cost functions which generate an optimal production overcapacity or an optimal congestion at the pure strategy Nash equilibrium. We show that the sign of the consumption externalities is endogenous. The result is independent of the nature (positive or negative) of the consumption externalities that affect the consumers’ preferences. A welfare analysis is performed. We underline the conditions under which the social planner chooses whether to clear the market or not. Application to a network economy is developed. Extensions to the following three cases are provided: (1) unsold stocks of goods with or without warehouse inventories, (2) quality of goods and (3) software markets.

Optimal Pricing Policy in the Presence of Positive and Negative Network Effects

Optimal Pricing Policy in the Presence of Positive and Negative Network Effects

Adapting Regional Clusters to Globalization and Crisis: The Role of Internal and External Linkages in Cluster Evolution, with a Focus on Tourism Clusters

In response to crisis threats and the challenges of globalization and informatization, processes oriented toward a system of internal or external linkages are taking place in regional industry clusters (clusters). Strategies directed at networks of connections within the region do not protect against the threat of isolation, which implies negative externalities of the network and the danger of crisis. Strategies based on the construction of foreign ties, associated with the relocation of selected elements of the value chain (so-called selective relocation), allow avoiding isolation and reaping positive network effects.

Network Effects and Multinetwork Sellers’ Dynamic Pricing in the U.S. Smartphone Market

Although the literature on network effects has focused on single-network firms, many industries feature multinetwork firms that play more complex dynamic pricing games. In this paper, we estimate the network effect at the smartphone operating system (OS) level and study multi-OS telecommunication carriers’ dynamic pricing strategies in an oligopolistic setting, using data on the U.S. smartphone industry. We find a positive OS network effect. Counterfactual analysis indicates that if the carriers were single-OS sellers, they would increase the phone prices of large OSs and lower the prices of small OSs, which reduces the consumer surplus by $6.99 billion. Further analyses show that the multi-OS carriers choose lower prices for large OSs than for small OSs because of their preference for OS concentration. This paper was accepted by Eric Anderson, marketing. Funding: This work was supported by the National Natural Science Foundation of China [Grants 72203217, 71803205, and 72192803] and the fund for building world-class universities (disciplines) of Renmin University of China. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4530 .

Securing Commitments from Stakeholders in 10 EU Member States—The Organic Seed Declaration to Foster Stakeholder Involvement

The new European organic regulation 2018/848 aims to phase out the use of non-organic seeds in organic farming by 2036. At present, achieving this goal in countries with a poorly developed organic seed sector is difficult, and therefore there is a great need to increase organic seed supply by promoting the development of the organic seed sector in Europe. This paper presents a conceptual framework to secure voluntary stakeholder involvement in the process of a gradual increase in the supply of organic seeds for organic farming. Stakeholders showed a high motivation to commit to concrete action points for moving forward. In addition, further actors were involved in the fulfillment of the commitments, a sign of a positive network effect in favor of organic seed production and use. The study indicates application potential and can complement mandatory policy instruments. Further progress monitoring is necessary to ensure that established structures maintain their function, and to keep the shared sense of responsibility alive.

Rethinking cross-border mobile payment ecosystems: A process study of mobile payment platform complementors, network effect holes and ecosystem modules

This study investigates how and why the Cross-Border Mobile Payment (CBMP) platform complementor develops complementary CBMP ecosystems. Drawing on research into platforms and ecosystems, platform complementor, CBMP, and International Business (IB), we propose that the evolution of CBMP platform complementors follows a modular process driven by transaction costs and network effects. Data from a research setting of a CBMP platform complementor’s international expansion between 2016 and 2020 suggest that the positive and persistent network effect holes provide an economic incentive for the CBMP platform complementor to create ecosystem modules. However, the mechanism by which ecosystem members participate in the module and co-create value is that they create full chain accountability, absorbing the network effect holes and lowering the module’s transaction costs. We propose a modularized process model that explains the CBMP platform complementor’s evolution based on our findings. We believe that our study contributes to the IB studies and operations by exploring the new phenomenon of CBMP platform complementors, adopting innovative research methods by integrating modularization and process patterning analysis, and extending the traditional transaction cost theory to the digital realm by incorporating the mechanism of network effect holes to its application in the formation of CBMP task modules.

A Review of Platform Business Models

The paper focuses on platform business models as ubiquitous features of the digital economy whose economic importance is continuously increasing. Considering their varying definitions and diverse typology, the aim of this paper is to coin a unified definition and identify the main attributes of platform business models. In line with fulfilling the aim of the paper, the following research question is addressed: ‘What are the main attributes of platform business models?’. Based on a vast literature review, the paper coins a unified definition and devises a novel typology, distinguishing four main types of platform business models: transaction, innovation, integrated and investment. Furthermore, the importance of both digital data and network effects as the main identified attributes is highlighted. Additionally, the paper devises a novel typology of network effects, amplifying users’ value-creating activities and interconnected relationships. The novel typology of network effects is distinguishing direct, indirect (cross-sided, cross-network or two-sided), data, positive and negative network effects.

Synergy of Digital Universality of the Global Computer Environment

The global computer environment (GCE) as a whole is considered an object of research. The system-wide as­pects of implementing the digital transformation of the sociotechnosphere through the GCE are analyzed. Factors of the destructive influence of the fundamental system-technical laws of the spontaneous growth of the GCE on the functioning/development of the sociotechnosphere are presented. Special attention is paid to the study of the features of the apperance of a positive synergetic network effect, expressed by Metcalfs law, in the conditions of the initially open intra-system heterogeneity of the network resources of the existing GCE. It is established that with the increase in the size of large distributed systems implemented in the GCE, the factor of heterogeneity of network resources becomes a source of negative (system-destructive) network synergy, which devalues the positive synergy of Metcalfs law. Examples of ecosystems implemented in the GCE through cloud technologies are considered. It is shown that in the conditions of initially open heterogeneity of network resources, the further increase in the size of large distributed systems leads to an insurmountable increase in the complexity of the system-functional integra­tion of network resources and an uncontrolled decrease in the stability of the sociotechnosphere. The principles of conceptual reengineering the GCE are presented to eliminate the causes of systemic heterogeneity and seamless/ cybersecurity distribution of algorithmic universality, closed in intracomputer resources, to any arbitrarily large subset of GCE computers. Such reengineering will allow neutralizing the negative synergy and maximizing the positive synergy of the Metcalf effect in large distributed systems without restrictions on their size.

Credit offering strategy and dynamic pricing in the presence of consumer strategic behavior

The dramatic growth of consumer credit market induces online platforms to adapt their operations in response to credit offering strategy when facing consumer strategic behavior. This study proposes a two-period pricing model for investigating platforms’ offering strategy of consumer credit and responding pricing policy, considering consumer strategic behavior and hassle cost from the credit. Consumers are heterogeneous in their disposable personal income (DPI) and valuations for the product, and are strategic in choosing the purchase timing to optimize their valuations. We find that the platform is willing to offer the credit when both the credit risk and the credit hassle cost are not sufficiently high, and the interest-free credit is sometimes more attractive over non-interest-free credit. In response to credit offering, the first and second period prices decrease as compared to the conventional case with no consumer credit, resulting in the increased first period demand and decreased second period demand. In addition, the platform's credit offering may mitigate consumer waiting behavior because of the direct effect of diminished passive waiting for consumers with low DPIs. Interestingly, credit offering may aggravate consumer strategic waiting. This may lead to an increased profit loss due to strategic consumer. Moreover, the proportion of consumers with high DPIs is critical for the platform in determining the credit offering strategy and pricing decision. Extended analyses uncover that positive spillover and network effects increase the platform's incentive to offer the credit. Surprisingly, credit offering may alleviate consumer strategic waiting when the strength of network effects is strong and hassle cost is low, and the platform's role, acting as a reseller or a marketplace has no qualitative effect on the consumer's strategic behavior.