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Legal Implications of Network Economic Effects

200 Pages Posted: 26 Sep 1997  

Mark A. Lemley

Stanford Law School

David McGowan

University of San Diego School of Law

Abstract

Economic scholarship has recently focused a great deal of attention on the phenomenon of network externalities, or network effects: markets in which the value that consumers place on a good increases as others buy the good. Though the economic theory of network effects is less than fifteen years old, and is still not thoroughly understood, network effects are increasingly playing a role in legal argument. Judges, litigators and scholars have suggested that antitrust law, intellectual property, telecommunications law, Internet law, corporate law, contract law and even the law of racial discrimination need to be modified to take account of network effects. Their arguments reflect a wide range of views about what network effects are and how courts should react to them. In this Article, we explore the application of network economic theory in each of these contexts. We suggest ways in which particular legal rules should -- and should not -- be modified to take account of network effects. We also attempt to draw some general conclusions about the role of network economic theory in the legal enterprise, and about the way in which courts should revise legal doctrines in response to theories from fields outside the law.

JEL Classification: K00

Suggested Citation

Lemley, Mark A. and McGowan, David, Legal Implications of Network Economic Effects. 86 Cal. L. Rev. 479, 1998. Available at SSRN: https://ssrn.com/abstract=32212 or http://dx.doi.org/10.2139/ssrn.32212

Mark A. Lemley (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

David McGowan

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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