Research Summary

Why Do Consumers Contribute to Connected Goods? A Dynamic Game of Competition and Cooperation in Social Networks

by Vineet Kumar

Description

Social network platforms and media rely on the voluntary contributions of individual users to stay relevant. Consumers (users) contribute content such as photographs, videos, tweets etc.: these are available to any of their friends or peers, but not to unaffiliated consumers. We term such contributions connected goods, since they occur in the context of users connected by a social network. A primary feature of connected goods is that the contributor or purchaser may not obtain consumption utility by contributing (for example, posting new videos on a Facebook account), but rather the user’s peers obtain consumption utility from these contributions. Understanding the drivers of contributions to connected goods is critical to both the social platform as well as advertisers who rely of traffic.

 

We formulate consumers’ decisions on when to actively contribute content to the social network as a dynamic game in the tradition of Ericson and Pakes (1995), and focus on Markov Perfect Equilibrium as the solution concept. In this game, forward-looking consumers strategically manage their contributions to maximize long-term utility that incorporates three primary effects. The first effect is self-expression, indicating con- sumers obtain an intrinsic benefit for contributions based on conveying an updated expression to their peers. The second effect is the competition for status, which depends on the positional contribution status relative to the consumer’s peers. The third effect is that consumers obtain consumption utility from the contribution made by their peers. Our model provides a general framework to rationalize why strategic consumers find making contributions to connected goods advantageous to their self-interest: with knowledge on the positional contribution status of peers in the social network, a consumer makes a contribution to compete for higher status in the network, and this contribution encourages further contributions from peers, which in turn increase the consumer’s future consumption utility.
Treating purchases of ringback tones as contributions to connected goods, we estimate the model using data on a network of interconnected mobile phone subscribers provided by a global cellular firm. Adapting recent developments in the estimation of dynamic games to social network competition, we derive estimates that characterize conspicuous contribution decisions and conduct policy simulations to investigate how a contribution made by one influential consumer can dynamically affect peer consumers in the social network.