Nonconcave, Nonmonotonic Network Externalities

While the existing literature confines attention to monotonic and strictly (globally) concave network externalities, we make a case for considering nonconcave and nonmonotonic externality functions. This formulation offers a more intuitive depiction of the relationship between network size and adoption externalities, in part because it captures both the exclusivity and functionality values of network goods. Our approach also highlights the potential coexistence of multiple stable equilibria, unstable equilibria, the history-dependence of equilibria, and the need for critical mass in the network industry. This approach thereby unifies in one simple framework some of the intriguing findings extant in the burgeoning literature on network