Extent of Network Effects and Social Interaction Effects Erik den Hartigh Delft University of Technology, The Netherlands E INTRODUCTION In economics and management science, there has been increasing interest in network effects and social interaction effects. Network effects occur when to an economic agent (e.g., a consumer of a firm), the utility of using a product or technology becomes larger as its network of users grows in size (Farrell & Saloner, 1985; Katz & Shapiro, 1985). The network effect may set in motion a positive feedback loop that will cause a product or technology to become more prevalent in the market. Social interaction effects occur when an economic agent's preference for a product or technology is de- pendent upon the opinions or expectations of other economic agents. The social interaction effect may and Perloff (2000). The most important influencing conditions are (Den Hartigh, 2005): · · The marginal economic gains of network size (i.e., the additional economic utility of adding one extra adopter to the network). Kretschmer, Klimis, and Choi (1999) point out that actors in networks are characterized by (a) conformity, which means that there are positive marginal social gains of an increase in network size and (b) individuality, which causes negative marginal social gains in response to an increase in network size. Abrahamson et al. (1997) show that the structure of the social network (network density and network idiosyncrasies) is an important determinant of the ·