Consumer Coordination in the Small and in the Large: Implications for Antitrust in Markets with Network Effects

Competition Policy and Antitrust

Article Snapshot


Daniel Spulber


Journal of Competition Law and Economics, Vol. 4, pp. 1-56, 2008


This paper asks whether networks need special antitrust treatment.

Policy Relevance

There is no reason to think that networks need special attention to protect competition. Aggressive regulation of networks will do more harm than good.

Main Points

  • “Network effects” exist when something becomes more valuable to a consumer when there are more other users. One email address is not useful as no one can send to or receive from it, but as more are added it is more useful.


  • Some pessimists argue that network effects in information technology need extra antitrust scrutiny or regulation, spurring cases against IBM, AT&T, and Microsoft.


  • Consumers can capture the benefits of networks by sharing information informally, or relying on large-scale mechanisms such as families, mass media, clubs, the Internet, and advertising.


  • Network effects do not let providers raise prices as the network grows. This myth arose because one partial model shows this in one context. The correct and complete model shows that an increase in price will reduce demand, just like other markets.


  • Low prices are needed to help the network grow to critical mass, so the benefits a networks would get from trying to become a monopoly are limited. Networks are not natural monopolies. Competing networks are common.

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