A study on the effect of network externality on marketing in the digital economy

Abstract

With more sectors showing increasing returns, we are in need of modified concepts, models, and strategies for management in today’s digital economy. In chapter 2, this study incorporates network externality factors into marketing analysis in the digital economy. Total network size, local network size, and network strength are introduced and I found three network externality factors have different effects on the users’ future usage intention for the four Internet services. In chapter 3, I developed a new diffusion model that incorporates the indirect network externality. New model incorporates the two-way interactions in forecasting the diffusion of hardware products based on a simple but realistic assumption. The new model is parsimonious, easy to estimate, and does not require more data points than the Bass diffusion model. The model was applied to forecast sales of DVD players in the United States and in South Korea, and to the sales of Digital TV sets in Australia. When compared to the Bass and NSRL diffusion models, the new model showed better performance in forecasting long-term sales.