The role of critical mass in establishing a successful network market: An experimental investigation

• We study experimentally consumers’ ability to coordinate on the Pareto-superior equilibrium in a network-good market.
• The size of the critical mass is the decisive factor in whether the market converges to the inefficient or efficient equilibrium.
• When the critical mass is sufficiently high, neither lower prices nor previous success at a lower critical mass can prevent rapid convergence to the inefficient equilibrium.
• Yet, when the critical mass is lowered, the efficient equilibrium is quickly reached.

A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. Through a series of experiments, we study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the size of the critical mass. Neither an improved reward-risk ratio through lower prices nor previous success at a lower critical mass facilitates the establishment of a network market when the critical mass is sufficiently high.