The Economics of Networks

The Economics of Networks refers to how the value of a service increases as more people or devices connect to it. Think of social media or telephone systems: the more users, the more useful and valuable the network is for everyone. This creates a positive feedback loop where increased adoption attracts even more users. Businesses often invest heavily in expanding networks because the larger the network, the greater the potential for growth and profit. Ultimately, the success of many modern technologies hinges on network effects—where the value depends on how many participants are part of the network.