Question

"A bandwagon effect is an example of negative network externality in which a consumer wishes to possess a good in part because others do."

Answer 1

False statement.

The bandwagon effect refers to a psychological phenomenon wherein the people prefer to do something because others are doing it, regardless of their own values, which they either may override or ignore. It is a sort of cognitive bias which explains why the individuals often adopt fleeting trends. It creates a demand or desire for a good by people who wants to be in style because goods are in trend and thus many others have it. It is a significant objective of advertising and marketing strategies for many companies who appeal to go in for a good as individuals of style wants it. Bandwagon effect arises due to the existence of positive network externalities; and the snob effect arises due to the negative network externality. The snob effect is contrary to the bandwagon effect