Network Externality: An Uncommon Tragedy

Stan Liebowitz and Stephen E. Margolis

Journal of Economic Perspectives, 1994, vol. 8, issue 2, 133-150

Abstract: Economists have defined 'network externality' and have examined putative inframarginal market failures associated with it. This paper distinguishes between network effects and network externalities, where the latter are market failures. The authors argue that while network effects are important, network externalities are theoretically fragile and empirically undocumented. Some network externalities are merely pecuniary. Network ownership or transactions among network participants can internalize some network effects. The type of market failure that has been associated with these externalities is a transition problem that has little to do with externality.

JEL-codes: L11 L13 L23 (search for similar items in EconPapers)
Date: 1994
Note: DOI: 10.1257/jep.8.2.133
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Citations: View citations in EconPapers (288)

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