1994/05/01 by Stan J. Liebowitz, Stephen E. Margolis · 4 citations
Business, Management and Accounting · Engineering · Decision Sciences · #Digital Platforms and Economics #ICT Impact and Policies #Auction Theory and Applications
paper · pdf · doi:10.1257/jep.8.2.133
openalex publication_date 1994/05/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/17
Economists have defined ‘network externality’ and have examined putative inframarginal market failures associated with it. This paper distinguishes between network effects and network externalities, where the latter are market failures. The authors argue that while network effects are important, network externalities are theoretically fragile and empirically undocumented. Some network externalities are merely pecuniary. Network ownership or transactions among network participants can internalize some network effects. The type of market failure that has been associated with these externalities is a transition problem that has little to do with externality.