Transcript Growing Two-Sided Networks by Advertising the User Base: A Field

Growing Two-Sided Networks by Advertising
the User Base: A Field Experiment
Catherine Tucker and Juanjuan Zhang
Marketing Science, 2010, 29(5), pp. 805-814.
Many networks advertise the size of their
user base
It is unclear how potential customers
would respond
• Suppose a network advertises having many
existing sellers. How would potential sellers
respond?
1. Worry about competition
Less likely to enter
2. Infer that demand is high
More likely to enter
We disentangle these two effects with a
field experiment
• Randomize:
1. Whether to display the existing number of sellers
and/or buyers on the network
2. The number of sellers/buyers, if displayed
Findings: the two effects coexist
• When the numbers of sellers and buyers are
both displayed, a large number of sellers
deters further seller entry
• This deterrence effect disappears when the
number of sellers is presented in isolation
(new sellers infer demand from competition)
• The demand-inference effect is stronger when
there is greater demand uncertainty
Takeaways
• Suggest a cost-effective growth strategy for
networks
– Emphasize competitive information to potential
customers who know less about demand
• Emphasize a nuanced interpretation of
competition
– It hurts profits but signifies market potential