Paper detail

Social network markets: the influence of network structure when consumers face decisions over many similar choices

In social network markets, the act of consumer choice in these industries is governed not just by the set of incentives described by conventional consumer demand theory, but by the choices of others in which an individual's payoff is an explicit function of the actions of others. We observe two key empirical features of outcomes in social networked markets. First, a highly right-skewed, non-Gaussian distribution of the number of times competing alternatives are selected at a point in time. Second, there is turnover in the rankings of popularity over time. We show here that such outcomes can arise either when there is no alternative which exhibits inherent superiority in its attributes, or when agents find it very difficult to discern any differences in quality amongst the alternatives which are available so that it is as if no superiority exists. These features appear to obtain, as a reasonable approximation, in many social network markets. We examine the impact of network structure on both the rank-size distribution of choices at a point in time, and on the life spans of the most popular choices. We show that a key influence on outcomes is the extent to which the network follows a hierarchical structure. It is the social network properties of the markets, the meso-level structure, which determine outcomes rather than the objective attributes of the products.