What are Network effects?

A product displays positive network effects if more usage of the product by any user increases the product’s value for other users (and sometimes all users). Although network effects and network externalities differ from each other, and the two terms are still used interchangeably. The interchangeable use of the terms is caused by the theory which underlines that network effects were developed to study network externalities, but strictly speaking network effects is a more general concept than network externalities.  If consumers are willing to pay more because of an expected rising number of network participants, a so-called network effects appears.