Size Doesn't Matter : Network Externalities vs. Information Cascades in the Adoption of Low Cost Internet Technologies

Internet technologies are often studied using network externality theory. In this paper, we question whether network externality theory should be applied as a behavioral model of low cost internet technology adoption. We argue that from the point of view of the adopter, not the researcher, applying network externality theory has a high cognitive cost that does not justify its application when adoption costs are low. Rather, an easier theory, from the adopter's perspective, is information cascade theory. Information cascade theory only requires that the adopter do what she sees others doing. We test our conjecture in a laboratory setting where we can control both the level of network externalities and what the adopter sees others doing. We find that the level of network externalities has no impact on the propensity to adopt but that the behavior of others has significant impact on the propensity to adopt low cost internet technologies