Network effect - Wikipedia, the free encyclopedia
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Saved by 11 people (3 private), first by anonymouse user on 2006-08-01
- Andvac on 2008-08-19 - Tags new york talk exchange
- Rah33ls on 2008-07-17 - Tags networkeffect , network , web2.0 , wikipedia , community , microeconomics
- Joel on 2008-02-29 - Tags business , models , pattern
- Jaedi1 on 2007-12-12 - Tags business , network_effect , strategy
- Crisscrossed on 2007-03-17 - Tags networks , theory
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Network effect is a term used narrowly to describe business phenomena, or more broadly to describe non-business phenomena.
In the narrow usage, a network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service. In other words, the number of prior adopters is a term in the value available to the next adopter.
One consequence of a network effect is that the purchase of a good by one individual indirectly benefits others who own the good — for example by purchasing a telephone a person makes other telephones more useful. This type of side-effect in a transaction is known as an externality in economics, and externalities arising from network effects are known as network externalities. The resulting bandwagon effect is an example of a positive feedback loop.
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