Science, Tech, Math › Social Sciences What Are Network Externalities? Share Flipboard Email Print Art Wager/Getty Images Social Sciences Economics U.S. Economy Employment Supply & Demand Psychology Sociology Archaeology Ergonomics Maritime By Mike Moffatt Professor of Business, Economics, and Public Policy Ph.D., Business Administration, Richard Ivey School of Business M.A., Economics, University of Rochester B.A., Economics and Political Science, University of Western Ontario Mike Moffatt, Ph.D., is an economist and professor. He teaches at the Richard Ivey School of Business and serves as a research fellow at the Lawrence National Centre for Policy and Management. our editorial process Mike Moffatt Updated April 10, 2019 Network externalities are the effects a product or service has on a user while others are using the same or compatible products or services. Positive network externalities exist if the benefits (or, more technically, marginal utility) are an increasing function of the number of other users. Negative network externalities exist if the benefits are a decreasing function of the number of other users. For example, Facebook likely confers positive network externalities since it is more useful to a user if more people are using it as well. Conversely, a road can confer negative network externalities since a driver on the road creates traffic for other drivers of the road.