Network Effects–We Missed the Inframarginals

When discussing the internet, the economic concept that seems to have made the largest dispersion into popular discourse is the concept of ‘network effects’. “Facebook  is unconquerable because of positive network externalities.” “Product X must reach the tipping point so that network effects can take over,” etc. This sub-field is often treated as if it is more-or-less mature (and it may well be), but there is a serious theoretical ambiguity within the economic literature about exactly what a network effect is based upon. The original incarnation of the term deals with a good whose value increases as the number of […]