Network Effects in Action

34 Pages Posted: 19 Nov 2020 Last revised: 11 Jan 2021

See all articles by Christopher S. Yoo

Christopher S. Yoo

University of Pennsylvania Law School; University of Pennsylvania - Annenberg School for Communication; University of Pennsylvania - School of Engineering and Applied Science

Date Written: November 11, 2020

Abstract

This Chapter begins by examining and exploring the theoretical and empirical limits of the possible bases of network effects, paying particular attention to the most commonly cited framework known as Metcalfe’s Law. It continues by exploring the concept of network externalities, defined as the positive external consumption benefits that the decision to join a network creates for the other members of the network, which is more ambiguous than commonly realized. It then reviews the structural factors needed for models based on network effects to have anticompetitive effects and identifies other factors that can dissipate those effects. Finally, it identifies alternative institutional forms that can eliminate or mitigate the impact of network effects.

Keywords: Antitrust law & poicy, economics of networks, externalities, Metcalfe's Law, competition, market failures, consumer welfare

JEL Classification: D40, D62, K21, L40

Suggested Citation

Yoo, Christopher S., Network Effects in Action (November 11, 2020). The Global Antitrust Institute Report on the Digital Economy 5, U of Penn, Inst for Law & Econ Research Paper No. 21-01, Available at SSRN: https://ssrn.com/abstract=3733669 or http://dx.doi.org/10.2139/ssrn.3733669

Christopher S. Yoo (Contact Author)

University of Pennsylvania Law School ( email )

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HOME PAGE: http://www.law.upenn.edu/faculty/csyoo/

University of Pennsylvania - Annenberg School for Communication ( email )

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Philadelphia, PA 19104-6220
United States
(215) 746-8772 (Phone)

University of Pennsylvania - School of Engineering and Applied Science ( email )

3330 Walnut St.
Philadelphia, PA 19104-6309
United States
(215) 746-8772 (Phone)

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