Editing Network effect (section)

== Network effect as a competitive advantage ==
Network effect can significantly influence the competitive landscape of an industry. According to [[Michael Porter|Michael E. Porter]], strong network effect might decrease the threat of new entrants, which is one of the [[Porter's five forces analysis|five major competitive forces]] that act on an industry. Persistent barriers to entry into a market may help incumbent companies to fend off competition and keep or increase their [[market share]], while maintaining profitability and return on capital.<ref>{{Cite web |last=Porter |first=Michael E. |date=1980 |title=Competitive Strategy: Techniques for Analyzing Industries and Competitors |url=https://papers.ssrn.com/abstract=1496175 |language=en |location=Rochester, N.Y. |ssrn=1496175 }}</ref>

These attractive characteristics are one of the reasons that allowed platform companies like Amazon, Google or Facebook to grow rapidly and create shareholder value.<ref>{{Cite news |last=Davenport |first=Thomas H. |date=2022-03-09 |title=How Legacy Companies Can Pivot to a Platform Model |work=Harvard Business Review |url=https://hbr.org/2022/03/how-legacy-companies-can-pivot-to-a-platform-model |access-date=2022-03-26 |issn=0017-8012}}</ref> On the other hand, network effect can result in high concentration of power in an industry, or even a [[monopoly]]. This often leads to increased scrutiny from regulators that try to restore healthy competition, as is often the case with large technology companies.<ref>{{Cite news |last=Satariano |first=Adam |date=2022-03-24 |title=E.U. Takes Aim at Big Tech's Power With Landmark Digital Act |language=en-US |work=The New York Times |url=https://www.nytimes.com/2022/03/24/technology/eu-regulation-apple-meta-google.html |access-date=2022-03-26 |issn=0362-4331 |archive-date=2022-06-04 |archive-url=https://web.archive.org/web/20220604195224/https://www.nytimes.com/2022/03/24/technology/eu-regulation-apple-meta-google.html |url-status=live }}</ref>