On the identification of critical mass in internet based services subject to network effects

Abstract

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In many Internet-based services, network effects have a significant impact on the evolution of the market. In particular, critical mass is a fundamental element due to its relevance to the growth process of these kinds of services. The objective of this paper is to set out some of the difficulties concerning the identification of critical mass. According to more conventional approaches, the critical mass is defined by the product's demand curve and its price. However, as shown in this paper, it is not possible to define a critical mass in such a simple way, since market structure and companies' entry strategy will substantially modify the mass adoption process starting point. Results also have an impact on determining the value of a network. Conclusions and directions for further research are also discussed.