The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation

Bradley J. Ruffle, Avi Weiss, Amir Etziony ()
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Bradley J. Ruffle, Avi Weiss, Amir Etziony: Wilfrid Laurier University
Authors registered in the RePEc Author Service: Avi Weiss and Bradley Ruffle

LCERPA Working Papers from Laurier Centre for Economic Research and Policy Analysis

Abstract: A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. Through a series of experiments, we study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass. Neither an improved reward-risk ratio through lower prices nor previous success at a lower critical mass facilitates the establishment of a network market when the critical mass is sufficiently high.

Keywords: experimental economics; network goods; coordination game; critical mass (search for similar items in EconPapers)
JEL-codes: C92 L19 (search for similar items in EconPapers)
Pages: 28
Date: 2015-05-12, Revised 2015-05-12
New Economics Papers: this item is included in nep-com, nep-exp and nep-net
Note: LCERPA Working Paper No. 2015-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:wlu:lcerpa:0092

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