2010 Volume 22 Issue 2 Pages 178-189
In a market with network externalities, consumers have an incentive to purchase products/services from a firm with a large customer share, because they can greatly benefit by using the products/services that have already been used by many other customers. Thus, when a firm obtains more customers than any other firm at the initial stage, it tends to acquire an overwhelming number of customers at the final stage of product/service diffusion. In this paper, by using the artificial market simulation method, we study the present strategies of a firm with a smaller customer share where it offers its products/services to some consumers without any initial cost. We examine the effectiveness of three types of such strategies to acquire a larger customer share as compared to other firms. We find that the final number of customers that the firm obtains by using these strategies depends on not only the types and number of consumers that receive the products/services free of cost but also the timing when the firm implements the strategies. In particular, we find that the firm's present strategy of offering its products/services to new customers whose friends have not had any purchase experience with the firm in its earlier stage can dramatically increase the possibility of the firm acquiring a larger customer share in the market.