Peer Influence in Network Markets: An Empirical Investigation

Schmalenbach Business Review, Vol. 59, No. 4, pp. 364-386, 2007

29 Pages Posted: 6 Mar 2006 Last revised: 9 Jul 2012

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

Date Written: August 1, 2006

Abstract

We analyze the effect of peer influence on the diffusion of an innovative network good, argu-ing 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 her benefit of adopting. We test empirically which effect dominates with Instant Messaging, an innovative network good, and 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, whilst the installed-base-effect seemed to play no role. Estimation is carried out with a discrete time hazard rate model that controls for unobserved heterogeneity.

Keywords: Innovation Diffusion, Peer Pressure, Peer Influence, Network Markets, Hazard Rate Model, Instant Messaging

JEL Classification: M3, D12, O32

Suggested Citation

Block, Jorn Hendrich and Koellinger, Philipp, Peer Influence in Network Markets: An Empirical Investigation (August 1, 2006). Schmalenbach Business Review, Vol. 59, No. 4, pp. 364-386, 2007. Available at SSRN: https://ssrn.com/abstract=886719

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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