Network Effects in Online Marketplaces: The Case of Kiva

Abstract

Advanced information technologies have enabled the development of online marketplaces that connect businesses and people on a global scale. Much of the analysis of the adoption, growth and engagement on these marketplaces in the extant literature is based on the premise that they are characterized by network effects%a premise that has major implications for their deployment, implementation and management. In this paper we test this premise using data from Kiva, the world’s largest online, peer-to-peer social lending marketplace. We find that while network effects are strong and significant during the early growth phase of the marketplace, they become weak or disappear once the marketplace stabilizes.