In order to answer this week\'s discussion question you must have read the secti

Question

   In order to answer this week's discussion question you must have read the section on "network externalities" in Chapter 10. After you've read that section, answer these questions. First, what is the definition of network externalities? Second, think about your phone. Imagine the situation where you could only call/text/contact other people who have the SAME phone provider you have: Verizon customers can only contact other Verizon customers; Sprint customers can only contact other Sprint customers, etc. What exactly does that have to do with network externalities? And third, would you be willing to operate under that scenario (Verizon-people-can-only-call-Verizon-people) if it meant your phone bill was cut in half every month? Why or why not?

Explanation / Answer

1.Network externalities: It is the effect that one user of a good or service has on the value of that product to other users. The value derived from the good depends directly upon the number of its users.

2. In case of phones where a user could only call/text/contact other people who have the same phone provider you have is a clear case of network externalities. Here, a verizon network user will be able to derive benefit from the network only if the user at the other end is using the same network. It is like a binding agreement.

3. Yes, definitely, if my friends and family use the same network, or can be convinced to use the same network,

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