09-Network Externalities

09-Network Externalities - Applying Consumer Theory:...

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1 Applying Consumer Theory: Network Externalitites Reading: Chapter 4
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2 Network Externalities Up to this point we have assumed that  people’s demands for a good are  independent of one another For some goods, one person’s demand  also depends on the demands of other  people If this is the case, a  network externality   exists
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3 Network Externalities Network externalities can be positive or  negative positive network externality  exists if the  quantity of a good demanded by a  consumer increases in response to an  increase in purchases by other  consumers Negative network externalities  are just  the opposite
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Network Externalities The Bandwagon Effect Positive network externality in which a  consumer wishes to possess a good in part  because others do This is the desire to be in style, to have a  good because everyone else has it This is the major objective of marketing and 
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09-Network Externalities - Applying Consumer Theory:...

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