Social learning and network externalities in decision making

Abstract

Purpose - This paper aims to identify the effects of social learning and network externalities by conditioning on product quality and early sales momentum. This approach is demonstrated using film sales data. Design/methodology/approach - This study used econometric modeling approach. Findings - It was found that both social learning and network externalities have significant and comparable impacts on film choice. We show that the relative effects of network externalities and social learning in the film market are robust to different momentum and quality definitions and to alternative estimation methods. Originality/value - Scholars have long argued that social learning plays a key role in new product diffusion. In some product categories, consumer choice may also be influenced by network externalities, meaning that purchasing popular products may provide the consumer utility above and beyond that derived from product usage directly. We propose a novel identification approach to help quantify the relative magnitude of these two effects on new product sales.