Do Network Externalities Really Matter In Consumer Behavior ? Experimental Framework For Measuring Willingness To Pay For Network Size

Consequences of network externalities, such as product growth and innovation diffusion, are widely studied in marketing literature. However, there is little empirical research that examines the existence of such network externalities in consumer behavior. When and how do consumers take into account the installed base, and the availability of complementary goods in the decision process? To help answer this question, an experimental study was built to demonstrate that network size actually influences consumers' choice in the case of e-book readers. We find that when the intrinsic value associated with a product is controlled, willingness to pay for network size is positive and confirms that consumers are in fact willing to pay a "premium" for the installed base and the availability of complementary goods. Implications of these findings for new product development and possible extensions are also discussed.