Have you ever wondered despite several other search engines, why Google is the dominant one? Why people are not inclined towards Bing or MSN or Yahoo?
Let's take another example. Facebook. Why Facebook is dominant when it comes to social media platform & networking and sharing? Why not Google Plus or Myspace?
Well, the answer lies in Network Effect!
It is a phenomenon in which increased no. of participants or people improve the value of a good or service. Facebook and Google are such examples wherein more and more people using the platform made it robust & refined, and hence, valuable to its users.
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| https://www.economicshelp.org |
So, as everyone starts joining Facebook, a bandwagon effect is created among people causing a need to join. Why? Because you would certainly want to join the social network where all your friends are on. Isn't it?
Now, Network Effects can indeed act as effective barriers to entry (for new entrants) in the market. Just like Facebook or Google, both have established a dominant position in the market making it extremely hard for a new firm to enter the market, even with different technology.
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Similar kind of network effect can also be witnessed in cases of Youtube and Instagram. The increasing audience for both these platforms fostered more participants to join. They are practically irreplaceable in their segment currently.
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