The effects of social networks on the diffusion of consumer goods: Evidence from rural Indonesia

This study examines the effect of social networks on the decision to purchase consumer products among 337 rural households in Indonesia. In particular, we focus on two types of products: gas stoves and probiotic drinks. The two types are different in that the benefits of the use of gas stoves are easily observed by users, whereas the benefits of probiotic drinks are not. Using multinomial logit estimations, we find that households with more friends who have bought a high-quality brand of gas stove are more likely to purchase the same brand. In contrast, households with more friends who have recently consumed probiotic drinks are less likely to consume these drinks. The results suggest that when the benefits of a product are easily observable, social networks contribute to the diffusion of the product by promoting its good reputation, whereas the effect of social networks can be negative through the proliferation of a product's bad reputation when its benefits are not observable.