The success of a platform depends largely on attracting a large user base to create network effects and enhance service value. Offering ‘free’ services is an effective strategy, even though platforms still profit by maintaining a vast base of non-paying users. However, digital data surveillance poses a threat by inducing a chilling effect, deterring users from engaging with these free services. The main challenge in the network economy is balancing profitability while sustaining positive network effects. This study, grounded in social exchange theory, explores the chilling effect—a rarely discussed negative network externality—and its impact on users’ willingness to adopt free network services. Through experiments and surveys simulating the download of a free mobile payment app, this research examines user behavior under varying privacy protections and user base sizes. The findings reveal a discrepancy between users’ stated preferences and actual behavior, highlighting the privacy paradox. The study offers recommendations for digital platform designers and privacy advocates to balance network effects with privacy protection.