Debunking the ‘Network Effects’ Bogeyman

4 Pages Posted: 28 Mar 2018

See all articles by David S. Evans

David S. Evans

Market Platform Dynamics; Berkeley Research Group, LLC

Richard Schmalensee

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

Date Written: December 2017

Abstract

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

Evans, David S. and Schmalensee, Richard, Debunking the ‘Network Effects’ Bogeyman (December 2017). Regulation, Vol. 40, No. 4, Winter 2017-2018, Available at SSRN: https://ssrn.com/abstract=3148121

David S. Evans (Contact Author)

Market Platform Dynamics ( email )

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Richard Schmalensee

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

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