Why and How Quality Wins over Network Effects and What it Means

Abstract

Networks are an important and very interesting phenomenon, which is increasingly prevalent in contemporary high-tech markets. Many papers in the literature have explored how network effects can lead to perverse markets. Contrary to this position, Tellis, Yin and Niraj (2009) suggest that quality is important even in the presence of network effects, which enhances rather than overwhelms the role of quality. The insightful commentaries of Brown and Morgan (2009), Ratchford (2009), Rossi (2009), Reibstein (2009), and Shugan (2009) seem to concur that the evidence of Tellis, Yin and Niraj (2009) is persuasive. However, the commentaries raise a number of important issues that enrich the meaning of the constructs and the interpretation of the findings. They provide a wealth of directions for future research.

Keywords: Network effects, Quality, Path dependance, Tipping