Editing Network effect (section)

=== Market tipping ===
Network effects give rise to the potential outcome of market tipping, defined as "the tendency of one system to pull away from its rivals in popularity once it has gained an initial edge".<ref>{{Cite journal|last1=Katz|first1=Michael L.|last2=Shapiro|first2=Carl|date=June 1994|title=Systems Competition and Network Effects|url=https://www.aeaweb.org/articles?id=10.1257%2Fjep.8.2.93|journal=Journal of Economic Perspectives|language=en|volume=8|issue=2|pages=93–115|doi=10.1257/jep.8.2.93|issn=0895-3309|access-date=2023-02-04|archive-date=2022-12-05|archive-url=https://web.archive.org/web/20221205011224/https://www.aeaweb.org/articles?id=10.1257%2Fjep.8.2.93|url-status=live}}</ref> Tipping results in a market in which only one good or service dominates and competition is stifled, and can result in a [[monopoly]]. This is because network effects tend to incentivise users to coordinate their adoption of a single product. Therefore, tipping can result in a natural form of market concentration in markets that display network effects.<ref>{{Cite book|last=1. Shapiro 2. Varian|first=1. Carl 2. Hal|title=Information Rules|publisher=Harvard Business School Press|year=1998|location=Boston}}</ref> However, the presence of network effects does not necessarily imply that a market will tip; the following additional conditions must be met:

# The utility derived by users from network effects must exceed the utility they derive from differentiation
# Users must have high costs of [[multihoming]] (i.e. adopting more than one competing networks)
# Users must have high switching costs

If any of these three conditions are not satisfied, the market may fail to tip and multiple products with significant market shares may coexist.<ref name=":4" /> One such example is the U.S. instant messaging market, which remained an oligopoly despite significant network effects. This can be attributed to the low multi-homing and switching costs faced by users.

Market tipping does not imply permanent success in a given market. Competition can be reintroduced into the market due to shocks such as the development of new technologies. Additionally, if the price is raised above customers' willingness to pay, this may reverse market tipping.<ref name=":4" />