Growing Two-Sided Networks by Advertising the User Base: A Field Experiment

Catherine Tucker and Juanjuan Zhang

Marketing Science, 2010, 29(5), pp. 805-814.

Many networks advertise the size of their user base

It is unclear how potential customers would respond

• Suppose a network advertises having many existing sellers. How would potential sellers respond?1. Worry about competition Less likely to enter

2. Infer that demand is high More likely to enter

We disentangle these two effects with a field experiment

• Randomize:1. Whether to display the existing number of sellers

and/or buyers on the network2. The number of sellers/buyers, if displayed

Findings: the two effects coexist

• When the numbers of sellers and buyers are both displayed, a large number of sellers deters further seller entry

• This deterrence effect disappears when the number of sellers is presented in isolation (new sellers infer demand from competition)

• The demand-inference effect is stronger when there is greater demand uncertainty

Takeaways

• Suggest a cost-effective growth strategy for networks – Emphasize competitive information to potential

customers who know less about demand• Emphasize a nuanced interpretation of

competition– It hurts profits but signifies market potential