Network Eternalities Model
Presented in Arthur, B.W., 1989, "Competing Technologies, Increasing Returns, and Lock-in by Historical Events", Economic Journal, 99, p.116-131.
Implemented by Marco Valente

(Very Simple)

The model consider two types of agents , say 0 or 1, and two types of a product, say A or B. At any period a new agent, of randomly determined type, enter in the market and chooses one of the two products. The model studies the market shares among the two products.

Agents choose the product that provides the highest utility. For example, the utility of product A for agents 0 is computed as:

U(A,0)=T(A,0) + X(0) x N(A)

where T(A,0) is the utility provided from product 0 to agent A for using the product individually, X(0) is the coefficient of network externalitie, indicating how important is the external factor for agents 0 and N(A) is the current number of consumer using product A. In a similar way it is possible to compute the remainig three utilities so to have all the combinations of products and consumers.

The model can be configured to have positive, null or negative externalities by choosing appropriate values for X(0) and X(1).




