Author

Yi XuFollow

Date of Thesis

2015

Thesis Type

Honors Thesis

Degree Type

Bachelor of Arts

First Advisor

Janet Knoedler

Keywords

Network effects, Network externalities, Two-sided markets, Advertising, Pricing, Social networks, Valuation

Abstract

Online networks are having an enormous economic impact, both at the micro and the macro level. The growth of the online networks involves the participation of users, advertisers, and platform providers. This paper argues that the optimal revenue is directly proportional to user population, which is a key factor driving the online networking firms forward. Also, different companies are able to generate different value from each individual user. These arguments are supported by our empirical tests analyzing the current online networking giants. Empirical models further suggest that our theoretical model performs best when we look at the relationship between growth rate of revenue and that of user population. In addition, higher speed of user population growth and larger initial user population have positive influences in a network's valuation.

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