Network Stability, Network Externalities, and Technology Adoption
Entrepreneurship, Innovation, and Platforms
ISBN: 978-1-78743-080-8, eISBN: 978-1-78743-079-2
Publication date: 16 September 2017
Abstract
When considering whether to adopt a network technology, how does uncertainty about whom a potential adopter might interact with affect their adoption choice? On the one hand, uncertainty about potential network partners might enhance adoption incentives, as increased uncertainty induces the potential for economies of scope across the potential network. On the other hand, uncertainty may reduce the expected value of any particular connection, and reduce adoption incentives. Since this is a theoretical puzzle, this chapter presents empirical evidence to help illuminate it. It presents evidence the destabilizing of a social network may increase the scope of network externalities, using data on sales of a video-calling system made to an investment bank’s employees and subsequent usage by these customers. The terrorist attacks of 2001 led potential customers in New York to start communicating with a new and less predictable set of people when their work teams were reorganized as a result of the physical displacement that resulted from the attacks. This did not happen in other comparable cities. These destabilized communication patterns were associated with potential adopters in New York being more likely to take into account a wider spectrum of the user base when deciding whether to adopt relative to those in other cities. Empirical analysis suggests that the aggregate effect of network externalities on adoption was doubled by this instability, and that for those with diffuse networks, this more than compensated for the negative baseline effects of the instability.
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Acknowledgements
Acknowledgments
I gratefully acknowledge financial support from the NET Institute (www.netinst.org) and the Kauffman Foundation (www.kauffman.org). All errors are my own. This chapter is based on an earlier working paper entitled “Interactive, Option-Value and Domino Network Externalities in Technology Adoption.”
Citation
Tucker, C. (2017), "Network Stability, Network Externalities, and Technology Adoption", Entrepreneurship, Innovation, and Platforms (Advances in Strategic Management, Vol. 37), Emerald Publishing Limited, Leeds, pp. 151-175. https://doi.org/10.1108/S0742-332220170000037006
Publisher
:Emerald Publishing Limited
Copyright © 2017 Emerald Publishing Limited