Ch. 7 Network Effects Flashcards
Windows OS, iPhones, 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 can be said to be _____.
A. vertically integrated B. platforms C. venture capitalists D. pure plays E. coopetitors
B. platforms
A firm can spend no money and time yet expect to enhance its offerings, by:
A. going public through an initial public stock offering.
B. allowing other firms to contribute to its platform.
C. adopting an envelopment strategy.
D. outsourcing critical processes to third parties.
E. preannouncing a forthcoming product to lower sales of current offerings.
B. allowing other firms to contribute to its platform.
Which of the following is an example of a one-sided market?
A. Yellow pages B. Credit card services C. Cell phone networks D. Nintendo games E. Operating systems
C. Cell phone networks
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. contestable B. captive C. monopolistic D. niche E. two-sided
E. two-sided
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 for network markets?
A. Shrinking of market size due to the ambivalent nature of competition
B. Emergence of several firms that constantly swap market dominance
C. Formation of alliances to counter the growing influence of dominant firms
D. Loss of revenue for market leaders due to arrival of new entrants
E. Early, fierce competition between rivals
E. Early, fierce competition between rivals
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. firms with strong network effects enjoy substantial bargaining power over partners.
B. firms with significant market share can leverage network effects to overtake prior market leaders.
C. the presence of multiple new entrants forces leading firms to drop prices of their offerings.
D. a dominant market share does not necessarily translate to greater profitability for a firm.
E. despite the presence of network effects, the music industry is not dominated by any single leader.
A. firms with strong network effects enjoy substantial bargaining power over partners.
Viral promotion involves:
A. offering rebates and incentives to customers for adopting a product or service.
B. sending a pre-written set of messages to customers or prospects over time.
C. emphasizing customer retention and satisfaction, rather than a dominant focus on sales transactions.
D. leveraging a firm’s customers to promote a product or service.
E. paying celebrities to use a product visibly to lure customers into unwittingly buying the product.
D. leveraging a firm’s customers to promote a product or service.
While Sony and Microsoft focused on the graphics and raw processing power favored by hard-core male gamers, Nintendo chose to develop a machine to appeal to families, women, and age groups that normally shunned violent games. The strategy adopted by Nintendo in the above example is the _____ strategy.
A. straddling B. mass customization C. convergence D. customer engagement E. blue ocean
E. blue ocean
Adobe gives away the Acrobat reader to build a market for the sale of software that creates Acrobat files. This is an example of:
A. firms giving away products for half of a two-sided market to seed the market.
B. one market attempting to conquer a new market by making it a subset, component, or feature of its primary offering.
C. firms spreading costs across increasing units of production or in serving multiple customers.
D. firms taking advantage of complementary products developed for a prior generation of technology.
E. markets, once considered distinctly separate, beginning to offer similar features and capabilities.
A. firms giving away products for half of a two-sided market to seed the market.
Network effects are also known as _____ Law
Metcalfe’s
_____ are products and services that allow for the development and integration of complementary goods.
Platforms
_____ 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.
Technological Leapfrogging
If a firm’s claim in the blue ocean is based on easily _____ resources (like technology features), then holding off rivals will be tougher.
imitated
The ability to take advantage of complementary products developed for a prior generation of technology is known as _____.
backward compatibility
A firm is said to have suffered from the _____ when it preannounces a forthcoming product or service and experiences a sharp and detrimental drop in sales of current offerings as users wait for the new item.
Osborne Effect
