Network Effects: March to the Evidence, Not to the Slogans

Forthcoming, Antitrust Chronicle

10 Pages Posted: 29 Aug 2017  

David S. Evans

Global Economics Group; University College London

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: August 27, 2017

Abstract

Though network effects are important for multisided platforms, the simple winner-take-all notion that they always give larger platforms an insurmountable advantage over smaller rivals has been disproven by numerous counterexamples. It is now being argued that big data is power, so that a firm that has more customer data than its rivals has an insurmountable advantage over them. This argument has no theoretical or empirical support, and it, too, has been disproven by numerous counterexamples.

Keywords: Network Effects, Indirect Network Effects, Multisided Platforms, Two-Sided Platforms, Two-Sided Markets, Online Platforms, Winner-Take-All, Tipping, Big Data and Antitrust, Big Data and Competition Policy

JEL Classification: L11, L12, L25, L41, L86, O33, K21, K23, D85, D42, D43

Suggested Citation

Evans, David S. and Schmalensee, Richard, Network Effects: March to the Evidence, Not to the Slogans (August 27, 2017). Forthcoming, Antitrust Chronicle. Available at SSRN: https://ssrn.com/abstract=3027691 or http://dx.doi.org/10.2139/ssrn.3027691

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)

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