Indirect Network Effects in New Product Growth

52 Pages Posted: 1 Feb 2007

See all articles by S. Stremersch

S. Stremersch

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for, and hardware sales of, a new product. While prior work on indirect network effects in the economics and marketing literature is valuable, these literatures show two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance the prior literature credits to the chicken-and-egg paradox in these markets, the temporal pattern - which leads which? - of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows, among others, that: (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature; (2) in most markets we examined, hardware sales leads software availability, while the reverse almost never happens, contradicting existing beliefs. These findings are supported by multiple methods, such as takeoff and time series analyses, and fit with the histories of the markets we studied. The findings have important implications for academia, public policy and management practice. To academia, it identifies a need for new, and more relevant, conceptualizations of indirect network effects. To public policy, it questions the need for intervention in network markets. To management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.

Keywords: Indirect Network Effects, New Product Growth, Takeoff, Chicken-and-Egg

Suggested Citation

Stremersch, Stefan and Tellis, Gerard J. and Franses, Philip Hans, Indirect Network Effects in New Product Growth (January 2007). Marshall School of Business Working Paper No. MKT 01-07, Available at SSRN: https://ssrn.com/abstract=960780 or http://dx.doi.org/10.2139/ssrn.960780

Stefan Stremersch (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

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Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing ( email )

Hoffman Hall 701
Los Angeles, CA 90089-0443
United States
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213-740-7828 (Fax)

HOME PAGE: http://gtellis.net

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

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