LEGAL IMPLICATIONS OF NETWORK ECONOMIC-EFFECTS

Economic scholarship has recently focused a great deal of attention on the phenomenon of network externalities, or network effects: markets in which the value that consumers place on a good increases as others use the good. Though the economic theory of network effects is of rece nt origin and is still not thoroughly understood, network effects incr easingly play a role in legal argument. Judges, litigators, and schola rs have suggested that antitrust law, intellectual property law, telec ommunications law, Internet law, corporate law, and contract law need to be modified to take account of network effects. Their arguments ref lect a wide range of views about what network effects are and how cour ts should react to them. In this Article, we explore the application o f network economic theory in each of these contexts. We suggest ways i n which particular legal rules should-and should not-be modified to ta ke account of network effects. We also attempt to draw some general co nclusions about the role of network economic theory in the legal enter prise and about the way in which courts should revise legal doctrines in response to theories from fields outside the law.