Laser disc players have been around for 10 years, but in the last seve

Laser disc players have been around for 10 years, but in the last several years, the sales have skyrocketed.

Manufacturers attribute the increase in sales to lower prices, increased availability of movies on laser disk, and the appearance of laser disks for rent in video cassette rental stores. Describe this market using the concept of network externalities.

ANSWER

There is a strong positive network externality at work in the laser disk player market. Laser disk players can only play movies that are prerecorded on disks. As more movies become available, and as disk rental has become a reality, more people are buying the laser disk players.

The sales of laser disk players has also been aided by lower prices, but the effect of the lower prices is not a positive network externality.