The '''network effect''' means thatcauses a good or service isto suchhave that thea value of the good or service to a potential customer is dependent on the number of customers already owning that good or using that service. EquivalentlyErgo, it means that the total value of a good or service that possesses a network effectseffect is roughly proportional to the square of the number of customers already owning that good or using that service.
One consequence of a network effect is that the purchase of a good by one individual indirectly benefits others who own the good - for example by purchasing a [[telephone]] a person makes other people's telephones more useful. This type of side effect in a transaction is known as an [[externality]] in [[economics]], and externalities arising from network effects are known as '''[[network externalities''']].
