Introduction Some products are popular with individual consumers precisely because each consumer places a value on others usin ng the same good a telephone is only valuable if others have one too Each user of Microsoft Windows benefits from having lots of other windows users Users can run applications, e.g., Word on each other's computers More applications are written for systems with many users Network effects or network externalities reflect such situations in which each consumer's willingness to pay for a product rises as more consumers buy it1 Introduction • Some products are popular with individual consumers precisely because each consumer places a value on others using the same good – A telephone is only valuable if others have one, too – Each user of Microsoft Windows benefits from having lots of other Windows users • Users can run applications, e.g., Word on each other’s computers • More applications are written for systems with many users • Network Effects or network externalities reflect such situations in which each consumer’s willingness to pay for a product rises as more consumers buy it