Avoiding the Oversimplification of Network Effects

Contemporary competition policy increasingly treats the presence of network effects as presumptive evidence of market failure and as a justification for regulatory intervention. This article argues that such categorical reasoning is inconsistent with both the theoretical literature and the empirical record. Foundational analyses of network effects emphasize countervailing forces — such as offsetting externalities, diminishing marginal returns, preference heterogeneity, and multihoming — that