Network Effects in Social Media

Monopolistic firm can strategically engineer the strength of network effects at utility level via social media. On this dimension, we focus on deriving the optimal level of social media functionality that increases the value of social interactions to each user. Such functionality includes features andenvironments that facilitate communication between users (e.g., chat capabilities, virtual reality environments where avatars can interact, screen sharing), collaboration on and cocreation of content (e.g., wikis, content editing, and tagging), peer endorsement or referral (e.g., on professional networks such as LinkedIn), building of reputation, etc.

In a different context, Bakos and Katsamakas (2008) explore how an intermediary would optimally engineer the strength of cross-side network effects when designing a twosided Internet platform. In contrast, we consider a vendor that endogenizes the strength of direct (sameside) network effects experienced by the buyers in parallel with seeding the market, when there are synergies between the two actions...