The Diffusion of Competitive Platform-Based Products with Network Effects

Abstract

The existence of network effects not only changes traditional product diffusion patterns but also has significant impacts on individuals’ decision behaviors. Previous studies on competitive product diffusion have focused on macro-level diffusion speed and effects while neglecting the micro-level impacts of individual heterogeneity and social interaction on product diffusion. This paper introduces the individual heterogeneities and social interactions of consumers into the competitive product diffusion model on the basis of a two-sided market framework and complex network theory. We proposed a small world network model and behavioral game theory. Specifically, the small world network model was used to build interactions between users, and behavioral game theory was utilized to describe the interactions between users. In our model, the direct network effect was distinguished from the indirect network effect on the basis of the synergy of multiple complementary products. The results show that the final distribution often presented a situation wherein two products coexisted, but the market share was very different. In an asymmetric first-mover situation, the direct network effect dominated the indirect network effect. Moreover, the dominant position of one product at present can be changed by the other under certain conditions. Finally, when the switching and learning costs were high, the market maintained its concentration, and the prior platform was unable to dominate the market. A decrease in the costs raised the prior platform’s market share and the speed of market occupation.