Impact of Network Homogeneity on Platform Engagement

Online consumer-to-consumer platform markets are characterized by network forces that influence the way consumers interact and engage with the service. While studies have investigated the effects of network size on platform engagement, we focus on the role of network homogeneity. Network homogeneity captures the benefit network members receive from interactions with others who are similar. We test hypotheses concerning the impact of network homogeneity and network size on a member’s platform engagement using daily gamer-level data on a massively-multiplayer-online-game (MMOG) that introduces five for-purchase add-ons over the time frame of our study.

In our setting, an add-on launch creates separate networks of add-on adopters and non-adopters: Those who adopt an add-on play with others who adopt; those who do not adopt play with others who do not adopt. We find that engagement increases with network homogeneity and network size. We explore moderating effects and find that the impact of network size on engagement is greater, and the severity of diminishing returns to size is lower, as network homogeneity increases. This leads to conditions where smaller, more homogeneous networks generate greater engagement compared to larger, more heterogeneous networks.

We also uncover a managerially relevant and heretofore overlooked network spillover from adopters to non-adopters: An add-on launch increases the engagement of non-adopters because the non-adopter network becomes more homogeneous as adopters leave. Lastly, in addition to the influence on engagement, we show that an increase in network homogeneity increases the probability of purchasing the sequel to the videogame. Our findings have implications for the literature on network effects as well as matching platforms that rely on favorable consumer interactions for generating revenue.