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The Applicability of Network Effect Theory to Low-Cost Adoption Decisions: An Investigation of Peer-to-Peer File Sharing Technologies
Abstract
In this work, we examined the boundary of the applicability of network effects theory. We theorized that when adoption is cheap, the cognitive demands of estimating network effects outweigh the benefit of making optimal adoption decisions. Thus, even in contexts where network effects do exist, we predict that adopters will use simple heuristics to make adoption decisions, if adoption is cheap. We propose that adopters simply do what they observe others doing. Using the context of peer-to-peer file sharing, we conducted three studies comparing network effects against simply following the behavior of others, and found in all three cases that there was no marginal effect of network size on willingness to adopt. However, when subjects were told classmates’ adoption choices, there was a strong marginal effect on willingness to adopt. Put simply, if people are offered the option of downloading a free peer-to-peer software, then changing the network size from 1,000 to 1,000,000 has no effect on their willingness to adopt, but having two classmates express a choice not to download the software, had a large negative impact on a subject’s willingness to download. Thus, our subjects, when faced with the option of a free download, did not behave in accordance with network effects theory, suggesting that there is a boundary on the applicability of the theory to internet adoption behavior.
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