Examining network externalities and network structure for new product introduction

Abstract

Much of the existing work on network externalities has assumed that network effects are dependent on network size. Very little consideration has been given to the view that marginal benefits from joining the network may not increase with network size, if consumer benefits come from direct interactions with neighbors in a local network. We use agent-based simulation to examine the effectiveness of the traditional network market strategy in the presence of a local network. Our results show that it is appropriate to establishing a sustainable network by leveraging the properties of local networks.