network
a structure that connects various entities with another. A network can be physical, virtual, or social
physical network
a network connected by a physical structure such as fiber optics, transportation routes, or satellites
virtual network
a network connected by groups of people using the same type or brand of good
social network
a network that combines elements of physical and virtual networks
network good
a good or service that requires the existence of a physical, virtual, or social network to exist
network externality
an external benefit generated from the consumption of a network good
network effect
describes how individuals and firms incorporate the external benefit generated from network goods into their decision making, which increases the value of the good further
network demand curve
a demand curve for a good or service the provides a network effect, causing it to slope upward at lower quantities before sloping downward once the market matures
core user
a consumer who has a very high willingness to pay for a new product or service and is among the first to purchase it
casual user
a consumer who purchases a good only after the good has matured in the market and is more sensitive to price
tipping point (critical mass)
the quantity from which network effects are strong enough to support the network
virtuous cycle
the point at which a network good reaches its tipping point, when network effects cause demand for the good to increase on its own. As more people buy or subscribe to a good or service, it generates even more external benefits and more demand
teaser strategies
attractive upfront deals used as an incentive to entice new customers into a network
switching cost
a cost imposed on consumers when they change products or subscribe to a new network
lock-in strategies
techniques used by firms to raise the switching costs for their customers, making it less attractive to leave the network
market segmentation
a strategy of making a single good in different versions to target different consumer markets with varying prices
versioning
a pricing strategy that involves differentiating a good by way of packaging into multiple products for people with different demands
intertemporal pricing
a type of versioning in which goods are differentiated by the level of patience of consumers. Less patient consumers pay a higher price than more patient consumers
peak-load pricing
a versioning strategy of pricing a product higher during periods of higher demand, and lower during periods of lower demand
bundling
a strategy of packaging several products into a single product with a single price. Bundling allows firms to capture customers of related products by making it more attractive to use the same firm's products
industry standard
a common format that is used, for example, in televisions, in digital recorders, or in software programs
essential facility
an input that is needed to produce a product or to allow a person to consume a product
interconnection
the physical linking of a network to another network's essential facilities. Interconnection promotes competition by ensuring that no firm has exclusive access to a set of customers