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Network effects

letter 123

Network effects

Letter no. 123


In economics, the network effect refers to the phenomenon where the value of the product or service rises disproportionately with the increase in number of users.


In our moneycontrol article today, we look at how this effect helps generate huge shareholder value (Microsoft, Facebook), let an inferior product retain market-leader status (PS2 vs. Xbox) and imparts huge pricing power (Apple music vs. Big Four record labels).


However, the existence of regulatory authorities possessing overriding powers can significantly disrupt the network effect’s influence and impact, as IEX is finding out off-late.

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