Network goods exist when many different users wish to share the same system or product; Microsoft Word and Facebook are examples. In these cases, we usually find monopolies or oligopolies because of the advantages offered when many customers can share a common system. Sometimes a firm may achieve market power by selling or creating a network good. Once such networks take off, they become large very rapidly and tend to be sold by one or only a handful of major firms. Since networks often grow rapidly and offer significant revenue potential, many entrepreneurs will try to set the standard for the network.

Sometimes customers will end up “locked in” to the wrong network, or at least users will disagree as to whether the better network has won out. There is a coordination problem involved in switching from one network to another, since virtually everyone must make a coordinated change. The end result is that often not everyone is happy with the dominant network.

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Still, network markets often are highly competitive, as different firms compete to be the dominant player. This competition induces them to upgrade their products, make them more convenient, and introduce innovations. It is common that a new market leader will leapfrog the old leader and replace it. The more contestable the market, the greater the incentive for product improvement and the less likely that customers will be locked into the wrong network. Businesses often take actions to deliberately increase switching costs.