Scientific Entrepreneurial Decision-Making in the Presence of Network Effects

This lunch seminar is organized by ABRI and the KIN Center for Digital Innovation. Please read more and register here.

Abstract

We study whether entrepreneurial firms launching products with the potential for network effects engage in scientific entrepreneurial decision-making differently. We propose they (1) have a higher tendency to test since product-market fit at launch is more important and (2) test more extensively since inference is more challenging when utility depends on social interactions. Since managers of firms releasing products with the potential for network effects are concerned with winner-takes-most dynamics, we also (3) suggest that competitive pressure negatively moderates this testing behavior. Analyzing data from the video games industry, we confirm our predictions about testing tendency and extent. Additional analyses of the performance implications suggest that (extended) testing is associated with higher, whereas competition-driven truncation with lower performance, suggesting firms overrespond to competition. We contribute to research on scientific entrepreneurial decision-making and network effects.