Rev Ind Organ (2011) 38:117–118 DOI 10.1007/s11151-011-9287-7 Victor J. Tremblay Published online: 8 March 2011 © Springer Science+Business Media, LLC. 2011 Networks play an increasingly important role in the world economy. Some markets exhibit positive network effects in which the value of a good or service increases with the number of consumers. These include telecommunications, video formats such as Blu-ray, many computer software packages, and online social networks like eHar- mony and Facebook. There can also be negative effects, which are present when an increase in the number of users makes the good or service less valuable. This is espe- cially common in the transportation sector of the economy, where congestion can be a problem. Markets with network effects pose difﬁcult policy questions. When strong positive network effects are present, no more than a few ﬁrms will exist in the long run, and surviving ﬁrms are likely to have market power. Although the market will be statically inefﬁcient, consumer value rises when each supplier serves a greater number of con- sumers. In addition, ﬁrms in emerging markets with rapid technological change, such as broadband service providers, must invest heavily in research and development in order to remain viable. In
Review of Industrial Organization – Springer Journals
Published: Mar 8, 2011
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