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On the identification of critical mass in Internet-based services subject to network effects

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  • Jose Luis Arroyo-Barrigüete
  • Ricardo Ernst
  • Jose Ignacio López-Sánchez
  • Alejandro Orero-Giménez

Abstract

In many Internet-based services, network effects have a significant impact on the evolution of the market. In particular, critical mass is a fundamental element due to its relevance to the growth process of these kinds of services. The objective of this paper is to set out some of the difficulties concerning the identification of critical mass. According to more conventional approaches, the critical mass is defined by the product's demand curve and its price. However, as shown in this paper, it is not possible to define a critical mass in such a simple way, since market structure and companies' entry strategy will substantially modify the mass adoption process starting point. Results also have an impact on determining the value of a network. Conclusions and directions for further research are also discussed.

Suggested Citation

  • Jose Luis Arroyo-Barrigüete & Ricardo Ernst & Jose Ignacio López-Sánchez & Alejandro Orero-Giménez, 2008. "On the identification of critical mass in Internet-based services subject to network effects," The Service Industries Journal, Taylor & Francis Journals, vol. 30(5), pages 643-654, May.
    • Handle: RePEc:taf:servic:v:30:y:2008:i:5:p:643-654
    DOI: 10.1080/02642060802253850
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    References listed on IDEAS

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    1. M. Keilbach & M. Posch, 1998. "Network Externalities and the Dynamics of Markets," Working Papers ir98089, International Institute for Applied Systems Analysis.
    2. Matthew T. Clements & Hiroshi Ohashi, 2005. "Indirect Network Effects And The Product Cycle: Video Games In The U.S., 1994–2002," Journal of Industrial Economics, Wiley Blackwell, vol. 53(4), pages 515-542, December.
    3. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
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