Introduction to Network Externalities

Network externalities are the effects on a user of a product or service of others 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 probably confers negative network externalities since a consumer of the road creates traffic for other consumers of the road.

Terms related to Network Externalities:
None

About.Com Resources on Network Externalities:
None

Writing a Term Paper? Here are a few starting points for research on Network Externalities:

Books on Network Externalities:
None

Journal Articles on Network Externalities:
None