A product exhibits a network effect when its value to each user rises as more people use it. A telephone is the classic case: a single instrument is useless, but each additional subscriber makes every existing line more worthwhile. Economists distinguish this from ordinary economies of scale, which lower a firm's costs of production; a network effect instead raises the benefit consumers derive from the good. The consequence for competition is significant. Once a networked product attracts a critical mass of users, later entrants must overcome not only the incumbent's cost advantages but also users' reluctance to join a smaller network. This dynamic can entrench a dominant firm even when a rival's underlying technology is superior, since consumers rationally prefer the larger network to the better isolated product.