The Economics of Networks: A Survey of the Empirical Literature

Network effects, the increase in value of consuming a product if many other consumers use the same product, is a feature of many markets of high-technology products. Frequently cited examples of products exhibiting network effects are telecommunication or software products. This paper surveys the burgeoning empirical literature that has developed especially during the last years. After theoretical work dominated the earlier years of research in this area, newer research has combined theoretical models with empirical studies and applied work with direct implications for marketing and public policy. Furthermore, insights from the study of social networks have been applied to analyse how consumers interact with each other. The paper argues that a closer analysis of the network structure of consumer interaction promises fruitful future research avenues and advances in our understanding of how network effects operate.