Question 1

A market dominated by a small number of powerful sellers is known as a(n) _____ .
A) oligopoly
B) pure play
C) short tail
D) blue ocean
E) greenfield

Accepted Answer

An oligopoly is a market structure characterized by a small number of firms selling similar or identical products, with significant barriers to entry for new competitors. This type of market structure can lead to higher prices and reduced competition.

Question 2

A firm can spend no money and time, yet expect to enhance its offerings, by:
A) allowing other firms to contribute to its platform.
B) going public through an initial public stock offering.
C) outsourcing critical processes to third parties.
D) adopting an envelopment strategy.
E) preannouncing a forthcoming product to lower sales of current offerings.

Accepted Answer

By allowing other firms to contribute to its platform, the firm can access new ideas and technologies without spending any money or time on research and development. This can lead to improved offerings without any additional investment.

Question 3

The natural state of a market where network effects are present is for there to be intense competition between several rivals.

Accepted Answer

The natural state of a market where network effects are present is for one dominant player to emerge and enjoy a significant advantage over its rivals. This is because the value of the product or service increase as more people use it, creating a barrier for others trying to enter the market. As a result, competition tends to be less intense in these types of markets.

Question 4

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

Accepted Answer

Cross-side benefits arise due to interactions between different classes of participants in a platform or network, not within a single class.

Question 5

eBay auctions more books over its portal than any of its rivals. Similarly, Second Life has more virtual storefronts than its rivals. This is because:
A) their offerings are associated with high total costs of ownership.
B) they offer greater market reach and benefits to customers.
C) their respective markets are marked by intense competition between rivals.
D) they have subsidized the initial adoption of their offerings to lure more customers.
E) they enjoy a greater price advantage over their rivals and can leverage this to increase profitability.

Accepted Answer

eBay and Second Life offer greater market reach and benefits to customers by having more books and virtual storefronts respectively. This attracts more customers to their platforms and ultimately drives higher revenue.

Question 6

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?
A) Formation of alliances to counter the growing influence of dominant firms
B) Early, fierce competition between rivals
C) Loss of revenue for market leaders due to arrival of new entrants
D) Emergence of several firms that constantly swap market dominance
E) Shrinking of market size due to the ambivalent nature of competition

Accepted Answer

The answer of Network effects are characterized by a positive-feedback...

Question 7

_____ are products and services that allow for the development and integration of complementary goods.

Accepted Answer

The answer of _____ are products and services that allow...

Question 8

In a market influenced by network effects, the winning product or service is determined by its technical superiority.

Accepted Answer

In a market influenced by network effects, the winning product or service is not necessarily determined by its technical superiority alone. Other factors such as user adoption, compatibility with existing systems, and marketing strategies can also play a significant role in determining the dominant product or service in the market.

Question 9

Almost all networks derive most of their value from a single class of users.

Accepted Answer

While there may be a dominant group of users on some networks, such as advertisers on social media platforms, most networks derive value from a diverse set of users and user interactions.

Question 10

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

Accepted Answer

The answer of Distinguish between one-sided and two-sided markets. Provide...

Question 11

Windows OS, the iPhone, the Wii, and Facebook's application programming interfaces allow for the development and integration of complementary goods by third parties. Based on this evidence, all these products or services are said to be _____.
A) pure plays
B) coopetitors
C) adaptors
D) platforms
E) venture capitalists

Accepted Answer

Windows OS, iPhone, Wii, and Facebook's APIs are all platforms that allow third-party developers to create and integrate complementary goods, such as software and applications.

Question 12

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

Accepted Answer

Proprietary standards can actually incentivize firms to invest in research and development to create new and better products or services that are compatible with their standards. Additionally, competition from other firms can lead to the development of alternative standards, further promoting innovation. While proprietary standards may limit interoperability between different products or services, this does not necessarily inhibit overall innovation.

Question 13

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.
A) monopolistic
B) niche
C) captive
D) two-sided
E) contestable

Accepted Answer

American Express is in a two-sided market because it provides services to both consumers and merchants. This type of market involves platforms or businesses that connect two (or more) distinct user groups, where the value of each group increases as the size of the other group increases. In this case, the more consumers that use American Express cards, the more attractive it becomes for merchants to accept American Express as a payment method, and vice versa.

Question 14

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

Accepted Answer

An instant messaging network is a one-sided market because it only involves one group of users, namely the users who are communicating with each other through the network. The network itself does not have any other customers or clients, making it a one-sided market.

Question 15

A market is said to be _____ if it derives most of its value from a single class of users.
A) a pure play
B) a long tail
C) core competent
D) one-sided
E) convergent

Accepted Answer

This is the definition of a one-sided market, where the market's value is dependent on a single group of users. A pure play refers to a company that focuses solely on a single product or service, a long tail market refers to a market with a large number of niche products, core competency refers to a company's unique strengths and abilities, and convergent refers to a market where multiple technologies or industries merge.

Question 16

_____ are products or services that add additional value to the primary product or service that makes up a network.
A) Quantum efforts
B) Substitute components
C) Complementary benefits
D) Orthogonal gains
E) Standby additions

Accepted Answer

Complementary benefits are products or services that add additional value to the primary product or service that makes up a network. They are offerings that enhance the quality, effectiveness, or value of the primary product or service. Examples of complementary benefits include accessories, add-ons, and support services.

Question 17

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:
A) the technical capabilities that a video game console can provide.
B) the willingness of video game console manufacturers to support their offerings.
C) their ability to reach the greatest number of paying customers.
D) the availability of similar efforts from their competitors.
E) the revenue sharing agreement they are able to reach with the console manufacturers.

Accepted Answer

Software developers are motivated to write games for consoles that have a large user base, as it increases their potential customer reach and sales.

Question 18

Which of the following is an example of a one-sided market?
A) Nintendo games
B) Credit card services
C) Operating systems
D) Yellow pages
E) Cell phone networks

Accepted Answer

The answer of Which of the following is an example...

Question 19

What are the primary sources of value for network effects? Give a brief description of how each of these factors provides value for network effects.

Accepted Answer

The answer of What are the primary sources of value...

Question 20

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:
A) despite the presence of network effects, the music industry is not dominated by any single leader.
B) the presence of multiple new entrants forces leading firms to drop prices of their offerings.
C) firms with strong network effects enjoy substantial bargaining power over partners.
D) a dominant market share does not necessarily translate to greater profitability for a firm.
E) firms with significant market share can leverage network effects to overtake prior market leaders.

Accepted Answer

Apple's dominant market share in digital music sales allowed them to exert significant bargaining power over record labels, a prime example of the power firms with strong network effects can have over their partners.

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

A market dominated by a small number of powerful sellers is known as a(n) _____ .

A firm can spend no money and time, yet expect to enhance its offerings, by:

The natural state of a market where network effects are present is for there to be intense competition between several rivals.

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

eBay auctions more books over its portal than any of its rivals. Similarly, Second Life has more virtual storefronts than its rivals. This is because:

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?

_____ are products and services that allow for the development and integration of complementary goods.

In a market influenced by network effects, the winning product or service is determined by its technical superiority.

Almost all networks derive most of their value from a single class of users.

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

Windows OS, the iPhone, the Wii, and Facebook's application programming interfaces allow for the development and integration of complementary goods by third parties. Based on this evidence, all these products or services are said to be _____.

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

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

A market is said to be _____ if it derives most of its value from a single class of users.

_____ are products or services that add additional value to the primary product or service that makes up a network.

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:

Which of the following is an example of a one-sided market?

What are the primary sources of value for network effects? Give a brief description of how each of these factors provides value for network effects.

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: