network effect

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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.
References in periodicals archive ?
Network Externalities, Competition, and Compatibility.
This article is divided as follows: the subsequent section will explore the literature related to the theme and the main discussed constructs: UTAUT2 and network externalities. The third section will describe the method used to address the research question and the hypothesis.
But blanket use of the network externalities argument for market failure is not entirely convincing simply because networks currently lack interoperability.
"Network externalities" occurs when the demand exerted by a person or organization can be influenced by other consumers who have already purchased the product (PINDYCK; RUBINFELD, 2005).
A distinguishing feature of networks is that they generate positive feedback effects (network externalities) in which users receive direct uncompensated benefits that increase with the network membership.
Each of a thriving service economy's major components -- ICT, finance, insurance, transportation and real estate -- needs the others to prosper, and cities are what bring them all together -- a phenomenon of network externalities.
De Nicolo, Favara and Ratnovski (2012) identify fire sales externalities, strategic complementarities, and network externalities as the externalities at the root of liquidity crises emphasised by the literature.
The corridor promotes growth by removing infrastructure bottlenecks, improving access to markets, stimulating trade and investment and boosting productivity and efficiency through associated network externalities and agglomeration effects.
(27) In this context, it is now undisputed that there must be indirect network externalities (or cross-platform externalities) to have a two-sided market: users' participation on one side increases the participation of users on the other side (and vice versa).
Flow and network externalities are added to the standard theory of planned behaviour to understand the intentions to use Whatsapp.

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