Peer Influence in Network Markets: An Empirical Investigation

Schmalenbach Business Review, Vol. 59, October 2007

23 Pages Posted: 14 Nov 2007

See all articles by Jorn H. Block

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Philipp Koellinger

Vrije Universiteit Amsterdam

Multiple version iconThere are 2 versions of this paper

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

JEL Classification: D12, M3, O32

Suggested Citation

Block, Jorn Hendrich and Koellinger, Philipp, Peer Influence in Network Markets: An Empirical Investigation. Available at SSRN: https://ssrn.com/abstract=1030015

Jorn Hendrich Block (Contact Author)

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Philipp Koellinger

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.philipp-koellinger.com

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