Classroom Companion: Business

 
Chapter 9 · Network Effects

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9
which translates informally to “people 
you would not feel embarrassed about 
joining uninvited for a drink if you hap-
pened to bump into them in a bar” 
(Dunbar, 
1998
).
Dunbar’s number has been applied 
to social media, business management, 
military studies, and workplace organi-
zation. The number has been used to 
study social networks such as Facebook 
and Myspace. The average user on 
Facebook has 155 friends, which is 
close to Dunbar’s number (Knapton, 
2016
). As quoted by Dunbar:
“The interesting thing is that you 
can have 1,500 friends, but when you 
actually look at traffic on sites, you see 
people maintain the same inner circle 
of around 150 people that we observe 
in the real world.” (Knapton, 
2016
)
Dunbar’s number and his studies of 
the size of social groups give empirical 
input to analytical network models 
such as Metcalfe’s law. The communi-
cation and formation of social circles 
might not be that different in social 
media as it is in the real world. One way 
of dividing people’s social circle is 
shown in 
.
Fig.
9.3
, in which five 
social groups are outlined: family and 
very close friends, close friends, friends, 
acquaintances, and strangers.
We may define two types of network effects: positive network effects and negative 
network effects.
Definition 9.2 Positive Network Effect
The network effect is positive if the market feedback causes a perceived increase in 
value (e.g., more users) that stimulates further increase in value (users).
.
Fig. 9.3 Size of human groups. (Authors’ own figure)