Jeffrey Rohlfs' 1974 Model of Facebook: An Introduction

Abstract

This short essay, forthcoming in Competition Policy International, summarizes and evaluates Jeffrey Rohlfs’ 1974 Bell Journal paper, “A Theory of Interdependent Demand for a Telecommunications Service.” Rohlfs’ work helped create a large literature on markets with network externalities in which demand decisions have long-lasting consequences, a literature that has informed competition policy. But Rohlfs assumed that demand-side decisions did not have long-lasting consequences. Social networking and Internet-based markets of this sort are increasingly important but have not been extensively studied. While they may pose interesting antitrust challenges, they are almost certainly not the challenges to which the post-Rohlfs literature pointed.