Social Interactions, Network Fluidity and Network Effects

This paper asks how much the strength of network effects depends on thestability and structure of the underlying social network. I answer thisusing extensive microdata on all potential adopters of a firm's internalvideo-messaging system and their subsequent video-messaging. This firm'sNew York office had to be relocated due to the terrorist attacks of 2001which lead to a physical re-organization of teams in that city but notin other comparable cities. I study the consequences of this disruptionfor adoption of video-messaging and the size of network effects. I findevidence that generally network effects are based on direct socialinteractions. Potential adopters react to adoption only by people theywish to communicate with: They are not affected by adoption by otherpeople. However, when there is a disruption to the social network andcommunication patterns become less predictable, users become moreresponsive to adoption by a broader group of users.