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

Bassel Tarbush, Paul Ormerod, R A Bentley

Research output: Contribution to journalArticle (Academic Journal)

Abstract

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.
Original languageEnglish
Article number0562083
JournalarXiv
Volume0562083
Publication statusPublished - 2012

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