Network Effect

Question 1

What is Metcalfe’s Law?

Answer 1

Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of connected users.

Question 1

What is the network effect in economics?


Answer 1

The network effect is the phenomenon where the value a user derives from a good or service depends on the number of users in the network.

Question 2

What are the 2 assumptions made for Metcalfe’s Law?

Answer 2

The value of each node is of equal benefit
New nodes create connections with all existing nodes

Question 3

Define a one-sided network.

Answer 3

All users belong to a single group and derive value from connecting with other users within the same group.

Question 4

Define a two-sided network.

Answer 4

There are two distinct groups of users, and the value of the network arises from interactions between these two groups.

Question 5

What is the cross-group network effect?

Answer 5

Where two or more distinct user groups interact, and the value to one group depends on the size or activity of the other group(s).