Lecture 4: Network Economics & Platform Companies

Question 1

What is the tipping point in network effects? (3)

Answer 1

Definition:

• a critical threshold (Schwellwert)
• where a small change triggers a significant and often irreversible shift in a system’s behavior.

Network Effects:

• occurs when a critical mass of users is reached,
• leading to rapid and widespread adoption.

Question 2

How to calculate the value of the company’s network? (2)

Answer 2

Determine the number of edges (connections or relationships between users) in the network.

# Edges = N⋅(N−1) / 2

• Where N is the number of nodes (users).

Question 3

With regards to platform-based Business models (BMPs) what is the difference between the two BMPs

• “Two-sided market”
• “Peer-to-peer”

(2)

Answer 3

Two-sided Market:

• Platform facilitates interactions between two distinct groups, each benefiting the other.
• e.g. a credit card company connects cardholders (consumers) with merchants (Händler).

Peer-to-peer:

• Platform enables direct interactions and transactions between individual participants without a central intermediary.
• e.g. a P2P sharing platform for services or goods, where individuals can offer and request services or share resources directly.

Question 4

What are network effects, also known as network externalities?

Answer 4

signify the increase in a product or service’s value, as more people use it.

Question 5

Name business model patterns that can be found in platform companies that leverage network effects? (3)

Answer 5

Lock-in,
Users become dependent on a platform or service due to factors like switching costs.

Peer-to-peer,
Participants interact directly without an intermediary.

Two-sided market,
Platform acts as an intermediary, facilitating transactions between two distinct groups, each deriving value from the other.

Question 6

What are same-side and cross-side network effects? (2)

Answer 6

Same-Side (Direct Network Effects):

• e.g., social media
• Value increases as more users on the same platform join

Cross-Side (Indirect Network Effects):

• e.g., game developers enhancing a gaming console’s value.
• Value increases with more users on a complementary (ergänzend) platform

Question 7

What are core interaction? Give two examples. (3)

Answer 7

fundamental activities forming the central user experience in a system or product.

• e.g. tweets on Twitter can be viewed as value units of Twitter.
• e.g. (Twitter): includes tools like hashtags, search filters, and content preferences. filters of the core interaction rapidly gain importance as the platform grows. Filters of Core Interaction: Features or settings within a system enabling users to refine their central user experience.

Question 8

During which stage is tracking the producer-to-consumer ratio usually most important? Why? (3)

Answer 8

Growth Phase:

• Platform scaling rapidly, attracting more users and content.
• Crucial to monitor producer-to-consumer ratio for a healthy ecosystem.
• Imbalances (e.g., too few producers for a large consumer base) can impact user engagement and satisfaction.