The Importance of Network Externalities and Population Models
The study of larger population models and the concept of network dynamics and externalities has been quite prevalent in our recent lectures. Externalities consume the notion that an individual’s welfare is affected by the activities of others, without a mutually decided compensation, holding deeper values beneath the scope of a population’s network and given connections. This idea can be viewed under two general lenses, positive and negative, where each element portrays a significant amount of influence on the overall social network and connections in society. It is also safe to say that underlying network externalities are essentially present in situations we may not initially think of. To further dive into this idea, the referenced paper, “Network Externalities and Cross-Platform App Development in Mobile Platforms” written by Singh, Hosanagar, and Nevo discusses the deeper perspectives and understanding of how potential indirect externalities found in the general populations’ adoption of a particular mobile phone influences a users’ selection of a software platform they interact with. As the authors engage in the underlying associations between these factors, where studies reveal network externalities emanating from a population’s preference for specific mobile devices, they further reveal its larger impact on the software platform ecosystem and competition. Approaching the study with models and extensive panel datasets, studies clearly displayed the existence of externalities exerted by apps onto current phone sales.
Focusing on the developers’ perspective, there are many connections between the referenced paper and the concepts of network externalities and equilibrium discussed in class. In the case of the research, the process of purchasing a particular mobile phone significantly influences which social platform they will begin to adopt. The concepts of externalities discussed in class convey this similar concept, where the welfare of platform developers is dependent on the indirect notions of the adoption of various mobile phones by the population. The very idea of the actions from one group having some indirect force onto another encapsulates the notions of network externalities where this effect can either help or harm the members’ welfare. Moreover, the textbook notes that “payoffs depend on the number of others who use a good and not on the details of how they are connected” (Networks, Crowds, and Markets, p. 449). Though the connections between the adoption of new phones with the vast social platform ecosystem are not clear nor direct, the underlying externalities stemming from one to another support the importance of social networks and population models to the understanding of a given society. These effects must also be uncompensated, as depicted in the referenced research.
CITATION
-Singh, Amandeep, et al. “Network Externalities and Cross-Platform App Development in Mobile Platforms.” SSRN, 28 Aug. 2021, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3911638.