Local Network Effects in the Adoption of a Digital Platform

Forthcoming at The Journal of Industrial Economics

43 Pages Posted: 22 Mar 2021

See all articles by Jin-Hyuk Kim

Jin-Hyuk Kim

University of Colorado at Boulder

Peter Newberry

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Liad Wagman

Illinois Institute of Technology - Stuart School of Business, IIT

Ran Wolff

Yahoo Research

Date Written: February 27, 2021

Abstract

We examine the extent to which the network effects that lead to the adoption of an online social platform are local. Focusing on the fantasy sports market in the US, we find that the size of a county's existing user base on the platform significantly impacts the number of new users who join the platform in that county. However, the size of the user base in nearby counties does not impact adoption, suggesting a local network effect. We also find evidence of heterogeneous network effects, as the impact of the user base is stronger in higher-income counties. Using simulations, we demonstrate that the initial distribution of users across counties can significantly influence the growth of the network over time. We draw implications for optimal seeding based on county population and income.

Keywords: Network effect; installed base; online platform; geotargeting

JEL Classification: L82, O33

Suggested Citation

Kim, Jin-Hyuk and Newberry, Peter and Wagman, Liad and Wolff, Ran, Local Network Effects in the Adoption of a Digital Platform (February 27, 2021). Forthcoming at The Journal of Industrial Economics, Available at SSRN: https://ssrn.com/abstract=3794351

Jin-Hyuk Kim

University of Colorado at Boulder ( email )

Campus Box 256
Boulder, CO 80309
United States

Peter Newberry (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

Liad Wagman

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

565 W Adams St Suite 412
Chicago, IL 60661
United States
7739809883 (Phone)

HOME PAGE: http://https://lwagman.org

Ran Wolff

Yahoo Research ( email )

Santa Clara, CA 95054
United States

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