The role of (personal) network effects and switching costs in determining mobile users' choice

Network effects and switching costs are two major economic forces in information technology industries. Although the consequences of these mechanisms on competition and firm strategy have been well documented in the literature, research on their impact on customer behavior has received less attention. In this study, the authors investigate the role of personal network effects and switching costs in explaining customer choice in the Spanish mobile telecommunications industry. Personal network effects are present when an individual user's utility increases more when some individuals adopt (social network) than when others do. Switching costs refer to costs associated with the process of switching from one provider to another. In addition, this paper studies the drivers of personal network effects and switching behavior. The results reveal that personal network effects and switching costs play a key role in determining mobile users' choice: the probability that a customer selects a mobile phone company increases with the number of members of her social network already subscribed to that firm, and switching costs are significantly present in the mobile phone market making switching providers costly. Concerning the drivers of both mechanisms, the authors find that relationship characteristics (length, depth and breadth) and demographics differently affect personal network effects perceptions and consumer switching behavior. Implications for decision makers are discussed. Journal of Information Technology (2009) 24, 160-171. doi:10.1057/jit.2008.35; published online 17 February 2009