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Direct network effects, small-world networks, and industry formation

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  • Funk, Jeffrey L.

Abstract

This paper addresses the formation of industries that involve direct network effects. Using two concepts from the literature on network effects (critical mass and inverse demand curves) and descriptive data from the formation of five telecommunication-related industries, this paper argues that a critical mass of users was created multiple times in these industries where multiple critical masses of users can be represented as local maximums in an inverse demand curve. The existence of these multiple local maximums reflects the existence of different sub-populations of users within a total population of potential users where these populations of users can be considered small-world networks. Initially the different sub-populations represent fragmented networks of users that are served by fragmented networks of firms. Over time connected networks of both firms and users emerge.

Suggested Citation

  • Funk, Jeffrey L., 0. "Direct network effects, small-world networks, and industry formation," Telecommunications Policy, Elsevier, vol. 33(5-6), pages 241-252, June.
    • Handle: RePEc:eee:telpol:v:33:y::i:5-6:p:241-252
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    Cited by:

    1. Zouhaïer M'Chirgui, 2010. "Small World Characteristics Of Innovative Smart Card Networks," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 221-252.
    2. Marvin Drewel & Leon Özcan & Jürgen Gausemeier & Roman Dumitrescu, 2021. "Platform Patterns—Using Proven Principles to Develop Digital Platforms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 519-543, June.

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