Peer Influence in Network Markets: An Empirical Investigation

Joern Block and Philipp Koellinger

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: We analyze the effect of peer influence on the diffusion of an innovative network good. We argue that the adopters of a network good have an incentive to convince others to purchase the same product because their utility depends on the number of other users. This peer-effect influences individuals’ adoption decisions alongside the more familiar installed-base-effect, based on the individual’s own insight that a larger number of installed units increases his/her benefit of adopting. We test empirically which effect dominates with Instant Messaging, an innovative network good. We arrive at surprising results with far-reaching implications for research and management. The diffusion of Instant Messaging was to a large extent driven by the peer-effect, but the installed-base-effect seemed to play no role. We perform our estimation with a discrete time hazard rate model that controls for unobserved heterogeneity.

Keywords: Hazard Rate Model; Innovation Diffusion; Instant Messaging; Network Markets; Peer Influence (search for similar items in EconPapers)
JEL-codes: M M13 M31 O32 (search for similar items in EconPapers)
Date: 2007-09-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Peer Influence in Network Markets: An Empirical Investigation (2007)
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