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Exam 8: Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World

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Question 1

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Mobile software developers often find iOS more attractive than the Android operating system, because Android runs on many more types devices than iOS and the Android operating system is fragmented into differnet versions, each combination of which needs to be tested.

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Firms that constantly innovate do so to develop open standards for competitors to become compatible.

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

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:

Microsoft's Live Maps and Virtual Earth 3D was a late entrant to the Internet mapping game. Users had already put in countless hours building resources that meshed with Google Maps and Google Earth. However, by adopting the same keyhole markup language (KML) standard used by Google, any work done by users for Google in KML could be used by Microsoft. What strategy of Microsoft has allowed it to catch up with Google?

Network effects are also known as _____ Law or Network ____________.

The phenomenon of ________________________________________ exists when increasing numbers of users lower the value of a product or service

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

_____ 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.

Sure, network effects are valuable, but why? List the three sources of the value (cited in our textbook & in class) that fuel the competitive advantage of network effects.

The phrase ________________ refers to positive influence created when someone finds out that others are doing something.

A Blue Ocean strategy often works best when combined with operational effectiveness.

Nokia is a cell phone brand that offers digital cameras as part of its cell phone products. It is now in direct competition with camera brands such as Canon and Sony, and has become the world's largest seller of cameras. This is an example of:

If a firm's claim in the blue ocean is based on easily _____ resources (like technology features), then holding off rivals will be tougher.

Adobe gives away the Acrobat Reader to build a market for the sale of software that creates Acrobat files. This is an example of:

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 this example is the _____ strategy.

What are "network effects"? Define the term and briefly explain the relevance they hold in an economic context.

_____ is said to occur when one market attempts to conquer a new market by making it a subset, component, or feature of its primary offering.

Network effects do not influence all consumer products or services.

Markets where strong network effects are present often exhibit a winner-take-all or winner-take-most dynamic. What network effects-related advantages can a dominant incumbent enjoy that help it repell rivals, and why is it so difficult for a newcommer to displace the dominant player in these markets?