Monday, October 23, 2017

Network effects tends to lead to concentrated markets

Consumers prefer credit cards accepted by more merchants, while merchants prefer credit cards carried by more consumers.
An additional customer on demand side of the market will add value to the other side of the same market. In another example, more gamers on Steam platform will increase the value of game content manufacturers. More merchants accepting American Express increases the value for American Express cardholders.
This eventually leads to concentrated markets. This is why network effects typically lead to giants – Wechat, Facebook, Twitter.