Non-User Externalities

We review an emerging literature on how non-user externalities—the benefits or harms that product adoption imposes differentially on non-users versus users—shape market outcomes. We first present a unified framework that distinguishes non-user externalities from network effects and classic externalities, such as pollution. A key distinction is that those harmed by classic externalities cannot mitigate harm by joining the externality-producing activity, whereas those harmed by negative non-user externalities can—simply by becoming users. This can expand the harm borne by remaining non-users, generating cascade dynamics that can culminate in product market traps: situations in which individuals would prefer the product not to exist, yet nonetheless choose to adopt it rather than remaining non-users. Using new survey evidence covering 25 product markets, we document that negative non-user externalities are pervasive, that the mechanisms behind them differ systematically across products, and that they generate adoption pressure on non-users. We then discuss how non-user externalities affect welfare analysis, firms’ strategic incentives, and market structure. We conclude by discussing policy responses, including design regulation and collective coordination mechanisms.