Network Externalities. B189. Why ‘Network Externalities’?. Economists term Externalities A cost or benefit that is not directly included in the price of an exchange e.g. R&D spillover, pollution Network Benefit derived from the ‘density’ of the user population e.g. Fax machines,.
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A network externality exists when adoption is characterized by complementarily in consumption or production.
Tirole, J. 1988. Theory of Industrial Organization. Cambridge, MA: MIT Press: p404