Exam 7: Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World

Apple, which controls over 75 percent of digital music sales, was able to dictate song pricing for years, despite the tremendous protests of the record labels. This implies that:

Distinguish between one-sided and two-sided markets. Provide examples for each and mention the benefits derived from these markets.

Firms that leverage proprietary standards for market dominance do not necessarily inhibit innovation.

Viral promotion involves:

Regional anti-trust authorities may consider product bundling by dominant firms to be anticompetitive.

Which of the following factors represents one of the sources of value derived from network effects?

The video game business is said to be a two-sided market. Customers buy a video game console largely based on the number of really great games available for the system. Software developers write games based on:

Metcalfe's Law is also known as:

Network effects are characterized by a positive-feedback loop, where the biggest networks continue to grow bigger. What implication does this positive-feedback loop have on network markets?

_____ involves competing by offering a new technology that is so superior to existing offerings that the value overcomes the total resistance that older technologies might enjoy via exchange, switching cost, and complementary benefits.

Cross-side benefits arise due to interaction among members of a single class of participant.

Microsoft's Live Maps and Virtual Earth 3D was a late entrant to the Internet mapping game. Users had already put in countless hours building resources that meshed with Google Maps and Google Earth. However, by adopting the same keyhole markup language (KML) standard used by Google, any work done by users for Google in KML could be used by Microsoft. What strategy of Microsoft has allowed it to catch up with Google?

Customers who owned Nintendo's 8-bit video game console were unable to play the same games on the firm's new 16-bit Super Nintendo system. There was little incentive for existing Nintendo fans to stick with the firm. In this case, Nintendo's new offering suffered from a lack of:

Every product or service subject to network effects fosters some kind of exchange.

Large firms often find new markets attractive, but might not have products ready for delivery. What strategy do such firms use to get potential adopters to delay their purchasing decisions?

An instant-messaging network is an example of a one-sided market.

American Express, a credit card firm, provides services to consumers that include plastic cards, individual accounts, and phone-based customer service. It also provides merchants with services, such as terminals for authorizing transactions and procedures for submitting charges. Based on the above facts, American Express is said to be in a _____ market.

Many firms attempt to enhance their network effects by creating a platform for the development of third-party products and services that enhance the primary offering.

In the context of network effects, the term "network" refers to wireless systems that connect pieces of electronics.

Network effects do not influence all consumer products or services.