Peer effects in product adoption

Michael Bailey, Drew Johnston, Theresa Kuchler, Johannes Stroebel and Arlene Wong

No 7685, CESifo Working Paper Series from CESifo

Abstract: We study the nature of peer effects in the market for new cell phones. Our analysis builds on de-identified data from Facebook that combine information on social networks with information on users’ cell phone models. To identify peer effects, we use variation in friends’ new phone acquisitions resulting from random phone losses and carrier-specific contract terms. A new phone purchase by a friend has a substantial positive and long-term effect on an individual’s own demand for phones of the same brand, most of which is concentrated on the particular model purchased by the friend. We provide evidence that social learning contributes substantially to the observed peer effects. While peer effects increase the overall demand for cell phones, a friend’s purchase of a new phone of a particular brand can reduce individuals’ own demand for phones from competing brands—in particular those running on a different operating system. We discuss the implications of these findings for the nature of firm competition. We also find that stronger peer effects are exerted by more price-sensitive individuals. This positive correlation suggests that the elasticity of aggregate demand is substantially larger than the elasticity of individual demand. Through this channel, peer effects reduce firms’ markups and, in many models, contribute to higher consumer surplus and more efficient resource allocation.

Keywords: peer effects; demand spillovers; social learning (search for similar items in EconPapers)
JEL-codes: D40 L10 L20 M30 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-pay and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Peer Effects in Product Adoption (2022)
Working Paper: Peer Effects in Product Adoption (2021)
Working Paper: Peer Effects in Product Adoption (2019)
Working Paper: Peer Effects in Product Adoption (2019)
Working Paper: Peer effects in product adoption (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7685

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