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Network Externalities

A network externality is a particular kind of externality that occurs when the act of buying a product/service confers indirect cost or value on all those who already own the same product/service.

A negative network externality imposes costs on other owners of the product/service

e.g. each car purchase increases road congestion

A positive network externality provides benefit to others who own the product/service

e.g. a telephone allows other telephone users to call you