How the Blackberry sales benefit from a mixture of information cascades and direct benefit effect in India
In class, we discussed the impact of direct-benefit-effects, also called network effects, on the choices made by consumers. One of the most natural settings for this to take place is the technology sector. The value that a product has is directly related to the number of other people using it. We also discussed the idea of information cascades, where, when people are connected by a network, it becomes possible for them to influence each other’s behavior and produce population-wide collective outcomes. While network effects can have both positive and negative impact on the choices made by users, the case I am going to consider here is one where the impact is positive.
According to reports, despite the decline in its sales in countries like USA, RIM (Manufacturer of Blackberries) still maintains a firm grip on the smartphone market in India even when bigger, and arguably better phones like the iPhone and Samsung galaxy S3 are out there in the market. While it is true that a developing country like India faces technical lag, network effects can better explain this phenomenon.
I want to begin this discussion by exploring the affect of information cascade in the case of blackberry’s popularity in India. As in India, a large proportion of the population is not the most technologically informed, information cascade becomes increasingly common and attains large numbers. Consider a technologically informed person in India, who buys the blackberry because of his own personal incentives that could be varied, the most common being: checking emails on the phone. Now consider another person who wishes to buy a new phone but does not have the technical expertise to make his own decision. He, however, knows the decision made by his friend, the person we just talked about. He will naturally trust his friend’s decision as he assumes that he had access to more information than he himself did and would base his decision on the one made by his friend, and purchase a blackberry. Thus, begins the information cascade and more and more people base their decisions on the decisions made by their friends. This affect of information cascade leads to the direct benefit affect: The major attraction of blackberries, especially among the generation Y, is the Blackberry Messenger, or what has commonly been known as BBM. Blackberry Messenger is essentially a messaging platform but it is better than texting using one’s phone plan as it is free. Naturally, the value of these messengers for the consumers increases when more of their friends join them. Mathematically, if f (z) is the function representing the value of the product for the consumer, where z represents the fraction using it, f (z) in this case is increasing in z. So more the number of people using blackberries, the higher its value for the consumer. Therefore, both these affects conjoin to increase the sales of blackberries in India.
Considering the same situation in a smaller network, one that consists of my friends and I in India, I have noticed the same affects. BBM is the main drawing force that lead to, turn-by-turn, more of my friends purchasing blackberries. When I questioned his or her choice of device, each one had the same thing to say, “Everyone else is on BBM so I should get on it too!”
References:
http://www.digitaltrends.com/mobile/blackberry-more-popular-than-iphone-in-india/