Fake It ‘Til You Make It: Goods with Network Effects
http://www.huffingtonpost.com/james-parsons/facebooks-war-continues-against-fake-profiles-and-bots_b_6914282.html
In 2015, Facebook had a reported 170 million fake users, with probably millions of additional fake users who have yet to be discovered. “Likes” can be bought from these fake Facebook users in the tens of thousands for under $25, and most often, these fake “likes” are used to artificially bolster the perceived popularity of a public figure, business, event, etc. For example, it was revealed that Justin Bieber originally had millions of fake Facebook fans, when he lost over 3.5 million likes in one night after Facebook went on a fake-account purge.
I wonder, though, if buying fake likes could be a viable strategy for a new entrant in a market where the good exhibits network effects. Say that this new entrant produces a superior quality good that would greatly benefit consumers but is just having trouble effectively marketing its product, or perhaps having trouble competing with the existing players in the market. And say that the demand for this product follows a model similar to one that we have explored in class, where the reservation price for consumer x when a z fraction of the population uses the product is given by the formula r(x)f(z), in which r(x) = 1-x and f(z) = 5z. In this example, if we set a price at 1.2, there would be 3 equilibria of fractions of the population using this good: 0 – stable, .4 – unstable, and .6 – stable.
If the new entrant initially had less than 40% (the “tipping point”) of the target population using its product, then actual usage would eventually dwindle down to 0. However, if this company could buy enough fake likes/fans to make it seems like at least 40% of the population was using its product, then the actual user base of its product would trend toward the upper, stable equilibrium of 60% and remain there. Consumers would be better off, because they would be using a product that is genuinely better quality. And this company, which “faked success” in the beginning, could end up becoming actually successful.
Since goods with networks effects tend to exhibit these “rich get richer” effects, in which one has to overcome a lower-bound tipping point, and perceived popularity often translates into real world success, I wonder if buying Facebook likes can be seen as the new “fake it until you make it” of the digital age.