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

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