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May 12, 2012

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Evan Stubbs

It's the pedantic economist in me coming out, but I've seen this show up in a few places and I'm not entirely sure it can actually be termed a network effect in the true economic sense. Network externalities exist when the utility gained from a good or service either increase or decrease based on the number of users. The prime example of a goods with strong network externalities is the telephone - its utility increases in a non-linear fashion as the number of users increases.

It's probably open to debate, but I'd argue that this is more a demonstration of herd behaviour rather than a true network externality. The marginal personal utility of another person joining in would be, in my opinion, pretty negligible. The value of the service (dancing) is independent to the number of people dancing; each individual still gains utility from dancing without anyone else joining in. There may be some network externalities caused by group dynamics, but these are weak at best.

I think it's a great example of herd behaviour but I'm not so sure it's a great example of the network effect. Facebook, on the other hand, is.

Marketisimo.blogspot.com

Hey Matthew,
This was a great example of a network effect.
You can see the whole video here: http://www.youtube.com/watch?v=nU7dxkIz1Vs

There is not only economic value, but there is also psychological value (eg. satisfaction after a good job) and this is clearly an example of such intangible value: each person joining the crowd adds value to each other member of the crowd, actually that's the inherent value of attending a concert instead of just listening to the music alone.
César

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