Week 11

Question 1

What are network economies of scale?

Answer 1

Each consumer’s willingness to pay increases with an increase in the number of other consumers

Question 2

How has the internet helped networks?

Answer 2

Connects the world together and brings together several markets

Question 3

Explain Rohlfs, 1974, and the problems:

Answer 3

Helps us to see the decisions between partaking and not in a network
We have Fh and Fl, the high and low networks
Fl is unstable as a small negative shock will cause the market to collapse
Can draw a quadratic diagram to help

Question 4

How can you entice the critical mass of the Rohlfs model?

Answer 4

-Introductory pricing
-Price discrimination, if possible
-Money-back guarantees

Question 5

What is the partial connection problem?

Answer 5

The provider tends to charge a higher price than the optimal… IF a consumer connects, others will benefit (positive externality), however, suppliers fail to internalise this positive effect as they want to maximise revenue from consumers
Should there be public intervention to expand the provision to include otherwise excluded consumers?