Ploog, Joe Niklas; (2024) Three essays on heterogeneous network effects: Implications for firms and users. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

In the dissertation “Three Essays on Heterogeneous Network Effects: Implications for Firms and Users,” I examine the impact of network effects across various markets, challenging the notion that these effects uniformly affect all market participants and are always beneficial. In the first theoretical chapter, I discuss the governance of multi-sided platforms, focusing on balancing openness and curation strategies to enhance match quality. Openness encourages network effects but requires intricate curation due to diverse user needs. In contrast, closed platforms offer higher quality matches with a more homogenous user base but struggle to achieve critical mass. I propose a framework to navigate these challenges, contributing to understanding platform success through strategic governance and curation to maintain high match quality. In the second chapter, I investigate the strategic choice of firms to incorporate social features in products, highlighting how these features can induce network effects. Analyzing the global board games industry, where collectible network games and traditional games coexist, my results show how social features influence product diffusion due to demand uncertainty. I contribute to the literature on network effects and innovation diffusion, offering strategic insights on when firms should integrate social features into their products. In the final chapter, I explore how incorporating social features into freemium products can propel and impede market success. Utilizing a sample of 9,700 Steam games, I demonstrate that while social features can significantly enhance a product’s appeal in markets with immense demand potential, they can also detract from the product’s value in markets with limited demand potential, thereby undermining network effects. This research enriches our understanding of product-level network effects, freemium strategies, and the dynamics of superstar products. Collectively, these essays advance our understanding of network effects, advocating a more strategic and context-sensitive approach to leveraging them for competitive advantage.

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