Network Effect

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  • A marketing terminology that (a) defines the effect of diffusion of information about product quality or service on value and (b) makes a product or service more valuable as the number of owners of the product or service increases. A product or service becomes more valuable as people disseminate positive information about its quality. Conversely, they are prone to become relatively worthless as negative information is disseminated about their quality, which results in smaller adoptions. Networking (information dispersion) or word of mouth, therefore, has an effect on product sales or value.

    Performance capacity tends to reinforce the network effect. Businesses with negative appraisals, whose products are neglected and do not show indications of growth, tend to reinforce notions of bad publicity (negative-network effect) and may end ...

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