ECONOMICS Chapter Notes -Network Effect, Veblen Good, Conspicuous Consumption
9 Dec 2021
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Positive and negative network externalities - bandwagon ,sndb and. We have assumed so far that peoples demand for a good are independent of one another. In other words, tom"s demand for coffee depends on tom"s tastes and income, and the price of coffee and perhaps the price of tea. But it doesn"t depend on dick"s or harry"s demand for coffee. This assumption has enabled us to obtain the market demand curve simply by summing individual"s demand. For some goods however, one person"s demand also depends on the demand of other people. In particular a person"s demand may be affected by the number of other people who have purchased the good. If this is the case, there exists a network externality. A positive network externality exists if the quantity of a good demanded by a typical consumer increases in response to the growth in purchases of other consumers. If the quantity demanded decreases, there is a negative network externality.
