Strategies to Grow Network Goods

Abstract

A network good is a product or service which becomes inherently more valuable as its adoption increases. The mechanism driving this value varies by context: for example, a software ecosystem produces more software as the “installed base” of its consumers and developers grows; the quality of content improves as a information aggregator collects information from more users; and the liquidity of an exchange-traded product increases as more investors trade the product. I begin my thesis with a puzzle: why are new network goods more likely to succeed in some markets than others? I show, both via a formal model and empirical analyses, that the likelihood of a network good's success depends on structural features of the innovation and its market. Tailoring entry and growth strategies to fit these features present new opportunities for established firms and entrepreneurs.