Network Stability and Network Effects

Abstract:     
This paper investigates how the stability of a communications network affects the scope of network effects, or how many people in an installed base influence other people's adoption.

The paper uses data on the adoption and use of a firm's internal video-calling system. The firm's New York office had to be relocated due to the terrorist attacks in 2001, which led to a physical reorganization of the teams in New York but not in other comparable cities. The shock led New York employees to call a more varied set of contacts, and also increased the number of people whose adoption influenced potential adopters. Empirical analysis suggests that for New York employees, whose communications network had become less stable as a result of the attacks, the effect of network effects on adoption was doubled.

Keywords: Network Effects, Social Networks, Stability

JEL Classifications: LO, L86

Working Paper Series