Network effects—do they matter for digital technologies diffusion?

Abstract

PurposeThe main research target of this paper is to capture the network effects using the case of mobile cellular telephony, identified in European telecommunication markets, and its determinants enhancing the process of digital technologies diffusion.Design/methodology/approachThis research relies on panel and dynamic panel regression analysis. The empirical sample covers 30 European countries, and the period for the analysis is set for 2000–2019.FindingsThis work contributes by examining the network effects identified on European telecommunication markets that drive the process of digital technologies diffusion, but it also extends the understanding of the latter by tracing major determinants of fast network expansion, e.g. prices of access to and use of, per capita income, urbanisation, population density, accessibility of fixed telephony infrastructure. The main findings support the initial supposition that the installed base strongly enhances diffusion of new technologies, while other factors, for example, prices, are not of prime importance.Research limitations/implicationsThis research has certain managerial implications. The unveiled network effects driving adoption of technological innovations constitute a significant determinant of implementation of differentiation strategy by telecommunication companies. Due to network effects consumers' propensity to join the network is valued higher than the prices of services offered, which is crucial not only from the perspective of the company's pricing strategy but also enables telecommunication companies to introduce to the market new products and/or services concentrating on increasing its quality and usability rather than future prices.Originality/valueThis is the first work that empirically verifies the intercompanies and interpersonal diffusion of cellular telephony, hypothesising that this process relies on unique network effects.