### 15.5 Network Externalities: Band wagon- and snob- effect

with slider for a smooth transition between these effects

Band wagon- and snob- effect are effects where the actual quantity demanded affects the demand curve. In the band wagon or herd effect, the already sold quantity additionally fuels the demand. This is the case, for example, with trendy commodities or when the benefit of a good depends positively on the number of consumers, as is the case with social networks or PC programs. The demand curve (hypothetically, for a constant herd effect) shifts upwards the higher the quantity of goods sold. In the case of the snob effect, on the other hand, the quantity sold has a negative effect on demand. The benefit of the product is valued more, the more exclusive the product is. The demand curve (hypothetically, for a constant snob effect) shifts upwards the lower the quantity sold.
Herd- and snob- effect are thus two sides of the same coin. In the case of the herd effect, the hypothetical demand curve shifts upwards with a higher quantity of goods sold, and with the snob effect it shifts downwards. The realized demand curve represents those points where the actual quantity demanded corresponds exactly to the hypothetical demand induced by exactly this quantity.
It can be seen that the actual demand is flatter (more elastic) with the herd effect than without this effect and that the actual demand is steeper (less elastic) with the snob effect than without this effect.

(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743
E-mail: Bauer@uni-trier.de
URL: https://www.cbauer.de