Managing adoption under network effects

Abstract

The consumption of several modern products is marked by strong network effects, i.e., the utility to a consumer improves with the overall adoption in the market. Examples include mobile platforms that significantly rely on user-generated content, social media platforms, massively multiplayer games, cryptocurrencies, etc. For a firm that intends to launch a new product in this space, the biggest initial challenge is to stimulate sufficient adoption through appropriately designed incentives - a problem that is exacerbated by the presence of strategic consumers who anticipate the informational benefits of delaying their adoption decisions.