Pursuit of Truthiness

my gut tells me I know economics

Archive for July 2018

Network Externalities Can Be Negative

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Economists often explain tech monopolies by reference to (positive) “network externalities”- basically the idea that the more people that use a service, the more valuable it is to each person. So, I want to use Windows not because it has the best features of any operating system in principle, but because most people use it and so lots of programs are made for it, there will be few compatibility issues working with others, et c.

Social media is often said to have the same network externality feature- I want to be on Facebook and Twitter because thats where everyone else is, so I’ll stay there even if some other site has some better features. If everyone else thinks the same way, Facebook and Twitter will maintain durable monopolies.

Network externalities are very important in social media, in that other consumers have a huge influence on how much I enjoy a site. But the externality isn’t always positive; often other users make the experience much worse by saying things that are mean, stupid, or boring, not to mention deliberately trolling.

In a way I’m just saying what’s blindingly obvious to everyone on social media: hell is other people. But I haven’t heard anyone put it this way before, in particular during the recent flurry of conversations about breaking up or regulating “tech monopolies“.

To me this actually seems like a great time to be starting a new, more selective/restrictive/smaller social network (think “the Facebook” starting out only available at Harvard- great filter). In the sea of information that is the modern internet, so much value comes from filtering and curation, and the biggest networks aren’t doing a great job here. Reddit is a great example of both the pitfalls of scale and virtues of being small and well curated- the default front page is a classic reference for what “lowest common denominator” looks like, but the site makes it easy to form small, strongly curated sub-Reddits and many of them are wonderful. It seems like someone figuring out how to implement a new, small Facebook or Twitter competitor would at least have a fighting chance if they can attract the right people and not simply try to grow as quickly as possible.