Are Indirect Network Externalities Warm or Chill? A Case of the U.S. Video Game Market

摘要

There have been two opposing thoughts on the characteristics of network externalities: the first is the traditional thought in which the network externalities generate a warm bandwagon effect to expedite the market adoption process; the other believes that network externalities are more likely tend to chill and slow down the adoption process. The rationale is, people often hold a wait-and-see attitude when encountered with a new network product and accept it only when sufficient number of others have adopted. Dramatically different from the traditional school of thoughts, the second theory demonstrated by Goldenberg, Libai, and Muller (2010) has provoked great debate among economic and marketing scholars. In this study, we intend to empirically examine the network externalities in a diffusion model framework and pursue the following research questions: (1) Are network externalities in the video game market more likely to accelerate or slow down the hardware adoption process? Are there any temporal changes in such nature and possible reasons? (2) How to better delineate network effects from the word-of-mouth effect in a Bass Model framework?