A Network Perspective of Digital Competition in Online Advertising Industries: A Simulation-Based Approach

Ray M. Chang (), Wonseok Oh (), Alain Pinsonneault () and Dowan Kwon
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Ray M. Chang: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada
Wonseok Oh: School of Business, Yonsei University, Seodaemun-gu, Seoul 120-749, Korea
Alain Pinsonneault: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada
Dowan Kwon: Formerly at the John Molson School of Business, Montreal, Quebec H3G 1M8, Canada

Information Systems Research, 2010, vol. 21, issue 3, 571-593

Abstract: Using agent-based simulation experiments, we investigate the outcome of SAs between two smaller online search engine companies in competition with a dominant market leader in settings where an advertiser's decision making is the consequence of a combination of NI (e.g., an individual's willingness to follow others' decisions) and IP. In particular, we focus on a context in which the combined search engine company competes with a market leader holding a larger share of the market than the two runner-up “underdogs” combined. Our results indicate that, with the presence of NI and cascading effects, an alliance with “only” 35%--40% combined market share could compete with a leader whose market share, at the time of an alliance, is 60%--65%. Although important, size alone might be insufficient to build the market as suggested by the “vanilla” network effect theory. Another noteworthy finding is that a nonlinear association exists between NI and an alliance outcome; the combined runner-up companies have the best chance of success when the extent of NI is midrange, rather than on the high or low end of continuum. Contrary to the conventional view, this finding might also stimulate discussions among network science researchers. Furthermore, our results suggest that NI substantially moderates the relationship between the combined market share at the time of an alliance and the likelihood of resulting alliance success.

Keywords: digital competition; NI; IP; switching force; SAs; online sponsored advertising; agent-based simulation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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