| Abstract: |
We study peer influence in an online social network on a platform where
consumers purchase music albums. They can follow their peers and become
informed about their consumption choices. In particular, we are interested in
how this affects consumers’ exploration of new music that exhibits unfamiliar
attributes (e.g. artist, genre, or instrumentation). Our empirical analysis
contains two parts: First, we analyze how the formation of new dyads in the
network depends on consumer-peer similarities in their preference for certain
album attributes. This affects music exploration because it determines which
peer purchases consumers are exposed to. Second, conditional on the
determinants of dyad formation, we investigate how within-dyad information
flows affect consumers’ purchase decisions, and in particular their
exploration of unfamiliar attributes. Our analysis produces three key
findings: First, preference similarities between consumers and peers are the
strongest predictor of the formation of dyads. This likely stifles consumers’
exploration of new music because it limits their exposure to unfamiliar
attributes. Second, we find a strong positive peer effect of consumers
observing peer purchases after the formation of a dyad. Third, this effect is
stronger for albums from unfamiliar artists, but weaker for those that exhibit
unfamiliar horizontal attributes (e.g. its genre). Together, this suggests
that new music exploration in online social networks is limited and subject to
nuance. |