Debunking the ‘Network Effects’ Bogeyman
4 Pages Posted: 28 Mar 2018
Date Written: December 2017
It is currently fashionable to argue that certain “network” industries—like telephones in the old days or various internet platforms today—are subject to market power because of “network effects”: lock-in by early movers. However, recent history belies that; Facebook displaced MySpace and Orkut, Amazon displaced eBay, Android and iPhone displaced Blackberry, Spotify displaced iTunes, Google displaced a slew of earlier search engines, and so forth. Though there are reasons to monitor these networks for market power, current fears of that power are more the product of political slogans than substantiated economics.
Keywords: Network effects, Facebook, market power, network industries, internet, internet platforms, Google
JEL Classification: L96, L14,
Suggested Citation: Suggested Citation