This paper is an exploration of the effects of externalities in exchange networks. Externalities of exchange arise when an exchange has direct consequences for the payoffs of actors who do not take part in the exchange. An experiment was conducted, employing the exclusively connected Line3 network, with two conditions; exchange with externalities, and exchange without. Externalities had a weak effect on partner selection, and a strong effect on the exchange rate. The results confirmed our predictions derived with an adaptation of core theory.