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Network externalities are an important way for firms to gain competitive advantage. Based on the theory of network externalities, this paper empirically compares the effects of network externalities on customer recommendation between luxury and necessity products. To verify the hypothesis, data from 539 consumers were collected. The empirical results showed that for both luxury and necessity products, direct network externalities have a positive impact on customer recommendation, while indirect network externalities have a negative impact on customer recommendation. This study extends the theory of network externalities and offers some practical implications. Introduction The past few decades have seen an explosion of experiment and insights into network externalities. Many scholars have explored the relationship between network externalities and product performance. A common finding from these studies is that network externalities positively related to performance. For example, direct network externalities have a positive impact on long-term new product performance, while indirect network externalities have a positive impact on short-term new product performance [1]. In addition to postulating how network externalities may enhance performance outcommes, recent work also highlights the possibitity that network externalities actually may detract from firm performance in some situations. For example, Zhou and Lu (2010) found that direct network externalities have no effect on customer satisfaction and perceived enjoyment [2]. Song, Parry, and Kawakami (2010) argue that network externalities have no effect on customers' willingness to pay [3]. Recent work, then, suggests a complex and even contingent role for network externalities in firm performance. There are needs for additional research to examine the relationship between network externalities and firm performance. Using customer recommendation as a proxy to firm performance, the aim of this study is to explore whether network externalities enhance a firm's performance. In addition, the study investigates whether two product category (luxury and necessity) moderate the relationship between network externalities and customer recommendation. Theoretical Background Network Externalities The concept of network externalities were first proposed by Rohlfs (1974) [4]. Rohlfs found that when new users choose the telephone network, they are more willing to join the network with more original users. After that, Katz and Shapiro formally defined network externalities in 1985 [5]. According to their definition, network externalities refers to the phenomenon that when the number of

Do Network Externalities Increase Customer’s Recommendation to Others? Empirical Comparative Study of Luxury and Necessity Products?