In this chapter, the term negative network externality describes:
A)the positive effect of consuming chocolate as income rises.
B)the snob effect.
C)the bandwagon effect.
D)the impact of a polluting firm on its local environment.

Question

Quizplus · Accepted Answer

The snob effect refers to a negative network externality, where a consumer's demand for a product decreases as more people start to use it, as they seek to distinguish themselves from the crowd. Negative network externality refers to the snob effect, which occurs when the value of a product decreases as more people begin to use it. This is in contrast to positive network externalities, which describe the situation where the value of a product increases as more people adopt it (e.g. social networks). Note that the other options listed do not describe negative network externalities. Choice A describes an income effect, not a network externality. Choice C describes the bandwagon effect, which is a type of positive network externality. Choice D describes a pollution externality, which is not related to network effects at all.

In This Chapter, the Term Negative Network Externality Describes