network effect

(redirected from Law of Increasing Returns)

network effect

The resulting increased value of a product because more and more people use it. Telephones, fax machines, computer operating systems and smartphones have been prime examples. A product's success is more about compatibility and less about its superiority to the competition. For example, Microsoft became hugely successful due to the network effect, because more and more people bought Windows PCs, and developers began to write programs for Windows only or at least much earlier than for the Mac version. In contrast, owing to the network effect, the company has also suffered, because although Nokia Windows Phones are excellent devices, they have a tiny market share compared to iPhone and Android, and fewer developers create apps for Windows Phones as a result. See tipping point and network externality.
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References in periodicals archive ?
Brian Arthur, an economist at the Santa Fe Institute, argues that investing in high-tech companies is different from investing in other companies, because of the interaction they have with network effects and the law of increasing returns.
One of the most important reasons is that farm sector is governed mostly by the "Law of Diminishing or Decreasing Returns" while agri-business and food processing industries are governed mostly by the "Law of Increasing Returns".
Similarly in the food processing also the return is governed by the law of increasing return for every unit increase in input.
The spectacular explosion of e-commerce and business-to-business Internet services bears witness to the special role that advances in computers and telecommunications play in today's flourishing economy "They operate using the law of increasing returns and have increased productivity faster than at any time in U.S.
"It's the law of increasing returns, the more useful and the more interesting it becomes, the more people will want to get on it." For the PC, that interest has been fed by the introduction of so- called killer applications- video games, email and so on - but for the internet, companies need to look at it differently.
Justice Department based on the law of increasing returns is a little bit loony.