Session 2: Economics of strategy

Question 1

Gefangendilemma

Answer 1

• Nash Gleichgewicht

Question 2

Nash Gleichgewicht

Answer 2

None of the players can increase his/her utility by deviating from the strategy.

Question 3

Overview: Network industries

Answer 3

• Network externalities
• Complementarity, compatibility, and standards
• Switching costs and lock in
• Significant economies of scale
  in production

Question 4

Network externalities

Answer 4

The utility derived from the consumption of a good or service is affected by the number of other people using similar or compatible products or services.

Question 5

Direct network externality:

Answer 5

The utility of a consumer directly depends on the number of other consumers,
without other products playing a role.

Question 6

Indirect network externality:

Answer 6

An increasing number of A-consumers leads to a better availability of complementary products (B), which indirectly increases the utility of A-consumers.

Question 7

Expectations and critical mass

Answer 7

• Adoption of a new technology within and across firms takes time.
• Speed: It is extremely important to exploit first-mover advantages.

Question 8

Complementarity

Answer 8

• Complements are products or services that have to be consumed together with other
products or sevices.

Question 9

Compatibility

Answer 9

– Products are said to be fully compatible

• downward/backward compatible
• one-way compatible
• partially compatible

Question 10

Standardization

Answer 10

• Standardization is defined as an explicit or implicit agreement to do certain key things in a uniform way.

Question 11

Switching costs and lock in

Answer 11

• If a customer is locked in, he faces costs when switching to a different service or adopting a new technology
Types: Contracts, Training and learning, Search Costs,