Social Learning or Network Externalities?
28 Pages Posted: 1 Sep 2018 Last revised: 24 Sep 2018
Date Written: September 13, 2018
This paper examines the relative importance of network externalities and social learning in generating sales momentum. Social learning finds strong support in an established literature, but it is found to have a negligible role in recent research by Gilchrist and Sands (2016), which emphasizes the importance of network externalities. We show that Gilchrist and Sands’ findings from the U.S. motion picture industry are not robust to alternative, and very credible, measures of movie quality. Using these alternative measures, we find very strong evidence of social learning. We also estimate a weekly movie-level demand model to identify which of the two mechanisms is more important in generating ticket sales momentum. Estimates using a larger data set of 2,603 movies between 1995 and 2014 are consistent with our extensions to the Gilchrist and Sands framework: there is strong evidence of social learning but little evidence of network externalities.
Keywords: network externalities, social learning
JEL Classification: D83
Suggested Citation: Suggested Citation