Network Effects and the Stability of Loop Networks

It is necessary to study the stability, the stability conditions and the formation mechanism, the relationship between the network effect and the loop network existing once the loop network formed because loop network also has the potential to form if connecting cost is more than the benefit of connection. This paper analyzes the stability and formation of the symmetric loop network by using of the cost-benefit method, depriving the stability conditions of symmetric loop network using of induction. In addition, we interpret the formation mechanism of loop networks with network effects principle. It is impossible to form a network if connecting cost is greater than connecting benefit when only considing short-term interests. But, the network can still form in a certain range of connecting cost, because of network effect based on the long-term benefits. The loop networks may be formed and keep stable if the connect cost is larger than its benefits because of network effects.