Scale Effects, Network Effects, and Investment Strategy

Posted: 27 Jan 2012

Date Written: May 13, 2011


This technical note discusses scale economies, and direct and indirect network effects in the context of building better business models. Some of the great business disasters of the bubble were companies that scaled their infrastructure without working through the scaling effects. This note also discusses multi-sided platforms, the skewing of business models reflecting a mispricing to get one side on board, and suggests the importance of testing in establishing viable business models.

Learning Objective: Theory supplement to cases like 610077 Pandora Radio.

Suggested Citation

Shih, Willy, Scale Effects, Network Effects, and Investment Strategy (May 13, 2011). Harvard Business School Technology & Operations Mgt. Unit Case No. 611-082, Available at SSRN:

Willy Shih (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States


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