Non-User Externalities

Leonardo Bursztyn (), Jan Fasnacht (), Bejamin Handel (), Rafael Jiménez-Durán (), Aaron Leonard (), Filip Milojević (), Christopher Roth () and Cass R. Sunstein ()
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Leonardo Bursztyn: University of Chicago & NBER
Jan Fasnacht: University of Chicago
Bejamin Handel: University of California Berkeley & NBER
Rafael Jiménez-Durán: Bocconi University, IGIER, CEPR, CESifo, & Stigler Center
Aaron Leonard: University of Chicago
Filip Milojević: University of Chicago
Christopher Roth: University of Cologne, ECONtribute, NHH Norwegian School of Economics, MPI for Behavioral Economics, & CEPR
Cass R. Sunstein: Harvard Law School

No 415, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We review an emerging literature on how non-user externalities—the benefits or harms that product adoption imposes differentially on non-users versus users—shape market outcomes. We first present a unified framework that distinguishes non-user externalities from network effects and classic externalities, such as pollution. A key distinction is that those harmed by classic externalities cannot mitigate harm by joining the externality-producing activity, whereas those harmed by negative non-user externalities can—simply by becoming users. This can expand the harm borne by remaining non-users, generating cascade dynamics that can culminate in product market traps: situations in which individuals would prefer the product not to exist, yet nonetheless choose to adopt it rather than remaining non-users. Using new survey evidence covering 25 product markets, we document that negative non-user externalities are pervasive, that the mechanisms behind them differ systematically across products, and that they generate adoption pressure on non-users. We then discuss how non-user externalities affect welfare analysis, firms’ strategic incentives, and market structure. We conclude by discussing policy responses, including design regulation and collective coordination mechanisms.

Keywords: Non-User Externalities; Welfare; Product Markets; Social Economics (search for similar items in EconPapers)
JEL-codes: D61 D62 D91 L14 (search for similar items in EconPapers)
Pages: 111 pages
Date: 2026-06
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_415_2026.pdf First version, 2026 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:415

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