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To: Charles Hughes who wrote (20079)	6/17/1998 10:34:00 AM
From: Gerald R. Lampton	Respond to of 24154

I don't know if they would testify to it when their companies are trying to merge, but the idea of network effects and market lock-ins is gospel among silicon valley marketing folks. . . . who don't run the economy, thank God. ;) More seriously, I think you are confusing network effects as a description of how the economy operates and its value as a guide for policy making. Greenspan was certainly raising criticisms of the network effects theory in both of these areas, but I really think he was really honing in on the second, normative aspect of the theory, the idea that government can and should intervene to reduce the effects of lock-in and move the economy to a different equilibrium point. I think you are certainly correct that Chairman Bill and all the rest understand the value of network effects and lock-in to their own marketing efforts. I would even venture to agree that there is some objective truth to the theory, though the "anti" literature certainly suggests the strength of network effects and lock-in is less than what W. Brian Arthur says it is. Whether it follows from all this that these ideas are a useful guide for policy, and, if so, what that policy should be, are different matters.