A Classroom Demonstration for Teaching Network Effects

The introduction of the concept of network effects is useful at the principles level to facilitate discussions of the determinants of monopoly, the need for standards in high-tech industries, and the general complexity of real-world competition. The author describes a demonstration and an extension that help students understand how consumers make choices in markets where network effects are prominent and how these choices affect market outcomes. He then provides an outline for a classroom discussion of the results.