AN EXPERIMENTAL MARKET WITH NETWORK EFFECTS AND ONE SPONSORED SELLER

This paper studies product adoption as modeled by Katz and Shapiro (1986) in an experimental setting. Two sellers offer competing, incompatible technologies and two groups of buyers make purchase decisions sequentially in a two-stage game of complete information. Value to a buyer from purchasing a technology depends on the total number of buyers of that technology (installed base). There is mixed evidence that the results are qualitatively consistent with equilibrium predictions laid out in theory. Buyers of technology display behavior close to equilibrium predictions. However, the sellers in the laboratory do not exploit their installed bases significantly.