Evolution of direct network effects: A perspective of market thickness of an online freight platform

Abstract

The dynamics of network effects present challenges for platforms’ management strategies across development stages, which have been overlooked in existing literature. Using data from a Chinese prominent freight exchange platform, this paper explores the evolution of direct network effects and offers an explanation for the inconsistent findings in existing literature. We find that direct network effects are positive initially but gradually lose significance and eventually turn negative as the market thickens. We consistently observe asymmetry in direct network effects, initially favoring carriers but shifting to shippers over time. Additionally, shippers experience earlier changes in direct network effects compared to carriers. We attribute the changes over time to the diverse perceptions of platform value resulting from an increased number of peers, as different forces dominate under different market thickness conditions. Our study contributes to the debate on direct network effects, providing insights into their variability based on market thickness.