While all goods have a general purpose of satisfying the...

While all goods have a general purpose of satisfying the wants and needs of people, specific types of goods hold specialized places within the market and have various unique components. Network goods are one of these. The value of a network good increases when more consumers purchase and use them. This is obvious when noting the definition of network, being a connecting system. The network effect is what creates the aspects of a network good. The network effect refers to the fact that the more people use something, the more value it has. There are four main types of network effects: direct, indirect, two-sided and local. Direct network effect is simply defined as increased use means increased value. Indirect network effects refers to†¦show more content†¦As cell phones become more popular in general within the market, for example, your own cell phone becomes more valuable now that its utility has grow. The actual value that these goods have for the customers can be split int o two parts. One component is the value propagated by the product without taking the number of users into account. The second part, is the value that comes from being able to interact with other users because of the product. The prospect that networks are able to compete with each other implies a consideration about intellectual property law. Where one standard is owned and another is not, the unowned side is unlikely to succeed for obvious reasons. Most of the time, the monopoly will be the owner while the substitute networks will not. Even though it is not for sure that inferior standards win against superior standards, this may be mostly because most standards are supported by companies who have some kind of ownership. A classic example of this would be the telephone with both local and long distance capabilities. 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