What are "network effects"? Define the term and briefly explain the relevance they hold in an economic context.

Question

Quizplus · Accepted Answer

The Answer is Network effects are sometimes referred to as "Metcalfe's Law" or "network externalities." In this context, a network refers to a common user base that is able to communicate and share with one another. When network effects are present, the value of a product or service increases as the number of users grows. Network effects are the most important reasons why users pick one product or service over another. They are among the most powerful strategic resources that can be created by technology-based innovation. Many category-dominating organizations and technologies owe their success to network effects, including Microsoft, Apple, NASDAQ, eBay, Facebook, and Visa. Network effects are also behind the establishment of most standards, including Blu-ray DVD, Wi-fi, and Bluetooth.

What Are "Network Effects"? Define the Term and Briefly Explain