# Reed's law

Reed's law is the assertion of David P. Reed that the utility of large networks, particularly social networks, can scale exponentially with the size of the network .

The reason for this is that the number of possible sub-groups of network participants is 2N − N − 1, where N is the number of participants. This grows much more rapidly than either

• the number of participants, N, or
• the number of possible pair connections, N(N − 1)/2 (which follows Metcalfe's law).

so that even if the utility of groups available to be joined is very small on a per-group basis, eventually the network effect of potential group membership can dominate the overall economics of the system.

## Derivation

Given a set A of N people, it has 2N possible subsets. This is not difficult to see, since we can form each possible subset by simply choosing for each element of A one of two possibilities: whether to include that element, or not.

However, this includes the (one) empty set, and N singletons, which are not properly subgroups. So 2N − N − 1 subsets remain, which is exponential, like 2N.

## Quote

From David P. Reed's, "The Law of the Pack" (Harvard Business Review, February 2001, pp 23–4):

"[E]ven Metcalfe's law understates the value created by a group-forming network [GFN] as it grows. Let's say you have a GFN with n members. If you add up all the potential two-person groups, three-person groups, and so on that those members could form, the number of possible groups equals 2n. So the value of a GFN increases exponentially, in proportion to 2n. I call that Reed's Law. And its implications are profound."