In the model of network effects that we covered in Chapter 17, there was only one product. Now…

In the model of network effects that we covered in Chapter 17, there was only one product. Now let’s ask what may happen if there are two competing products which both have network effects. Assume the following for each product:

(a) If no one is expected to use the product, then no one places a positive value on the product.

(b) If one-half of the consumers are expected to use the product, then exactly one-half of the consumers would buy the product.

(c) If all of the consumers are expected to use the product, then all consumers would buy the product.

Using an analysis of network effects, describe the possible equilibrium configurations of numbers of consumers using each product and briefly discuss which of these equilibria you would expect to be stable and which you would expect to be unstable. You do not need to build a formal model to answer this question. Just describe in words what may happen in this market.

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