AT&T has a new marketing plan whereby customers pay a flat fee to make unlimited calls to other AT&T customers.  Before the implementation of AT&T’s plan, there were no network externalities to your choice of long-distance telephone carrier. If everyone else in the world but you used AT&T, you still had no compelling reason to switch. Under AT&T’s plan, however, you would want to use them if everyone else you knew also did.
Your friends are more likely to call you if they don’t have to pay for the privilege. Consequently, the more of your friends who get this plan, the greater incentive for you to adopt it as well. AT&T has thus created an artificial reason for you to go with the most popular provider (among your
What would happen if all the major long-distance companies created artificial network externalities? Would this make them all better off, or would the effects of each plan cancel out? As we have explained, price competition is terrible for companies. When all companies
Network externalities often lead to a winner-take-all situation where only one firm prosperously survives. Government regulation, however, makes it
 MSNBC.com (February 6, 2002).
Coordination failures prevent Americans from enjoying high-definition TV. Consumers will buy high-definition TVs only if they can use them to watch high-definition TV shows. Unfortunately, it’s expensive for broadcasters to transmit high-definition signals, so they will only transmit when enough consumers have bought compatible TVs. When everyone waits for everyone else to start, however, not much happens.
The U.S. Congress tried to ensure the spread of high-definition TV by giving broadcasters the rights to billions of dollars of spectrum in return for the broadcasters
Money acquires value through network
Because so many people want money, it’s useful to have it because you can trade money for goods and services. Thus, our use of money is based upon a massive coordination game.