Why your phone is worth more because everyone else has one too

Most products lose value the more people own them — exclusivity is the appeal. But some products do the opposite. A network effect occurs when a product becomes more valuable as more people use it. A telephone is useless if you're the only one who owns one. Add a second person, and you get one possible connection. Add a hundred, and you get thousands.

This creates a powerful economic dynamic: once a product hits a critical mass of users, growth becomes self-reinforcing. People join because others already joined. That's why social media platforms, messaging apps, and payment systems tend toward winner-take-all markets — switching to a competitor means leaving everyone behind.

But here's the twist economists find fascinating: the best product doesn't always win. The product that reaches critical mass first often dominates, even if a superior alternative exists. The QWERTY keyboard layout wasn't designed for speed — it was designed to stop typewriter keys from jamming. Yet it persists because everyone already learned it, and no one wants to switch alone. Economists call this path dependence: early advantages lock in outcomes that are almost impossible to reverse.