Why do economies of scale and monopoly power exist with network goods?
A) Many small firms must develop to serve all of the consumers willing to pay for access to the network good, so their costs are driven down.
B) Network goods require a group of sellers working together and this cooperation reduces the firms' cost per unit.
C) Just as the value of a network good decreases to each user as the total number of users increases, so does the long run average cost decrease as output increases.
D) As the number of people connected to a network increases, the greater the benefits each person gets and the smaller the cost per unit to supply.

Question

Quizplus · Accepted Answer

Economies of scale and monopoly power with network goods occur because as more people join and use the network, the value of the network to each user increases, often referred to as network effects. This increasing value can lead to a single firm dominating the market (monopoly power) because it becomes more efficient for one firm to supply the network as it grows, leading to lower average costs per user.

Why Do Economies of Scale and Monopoly Power Exist with Network