Friday, May 25, 2018

Debunking the ‘Network Effects’ Bogeyman

David Evans - Global Economics Group and UCL and Richard Schmalensee Massachusetts Institute of Technology (MIT) - Sloan School of Management are Debunking the ‘Network Effects’ Bogeyman.

ABSTRACT: It is currently fashionable to argue that certain “network” industries—like telephones in the old days or various internet platforms today—are subject to market power because of “network effects”: lock-in by early movers. However, recent history belies that; Facebook displaced MySpace and Orkut, Amazon displaced eBay, Android and iPhone displaced Blackberry, Spotify displaced iTunes, Google displaced a slew of earlier search engines, and so forth. Though there are reasons to monitor these networks for market power, current fears of that power are more the product of political slogans than substantiated economics.

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