Netflix vs
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Questions and Answers

What did Schumpeter coin as a process of industrial mutation?

  • Dynamic Innovation
  • Capitalistic Mutation
  • Creative Destruction (correct)
  • Market Revolution

    • According to Schumpeter, where do economic rents come from?

  • Stability and consistency
  • Government regulations
  • Market monopolies
  • Changes, which lead to opportunities (correct)

    • What did Schumpeter consider as an essential part of capitalism?

  • Creative Destruction (correct)
  • Monopolistic Practices
  • Government Intervention
  • Market Stability

    • What did Schumpeter believe was critical to competition?

    <p>Timing and adaptation</p> Signup and view all the answers

    What is the premise of Schumpeterian Perspective?

    <p>Markets are dynamic, not static</p> Signup and view all the answers

    What did Schumpeter identify as a process that incessantly revolutionizes the economic structure from within?

    <p>Creative Destruction</p> Signup and view all the answers

    When starting a platform, firms should always begin with as many sides as possible to maximize the network effects. True or false?

    <p>False</p> Signup and view all the answers

    When deciding how to price each side of a two-sided platform, a firm should generally profit from (charge) the side that:

    <p>Creates the least value for the other side</p> Signup and view all the answers

    Complements in the gaming industry enhance the value of another and are associated with:

    <p>Negative cross-price elasticity</p> Signup and view all the answers

    What strategy did Nintendo use to overcome the chicken and the egg problem in the gaming industry?

    <p>Subsidizing by selling consoles at a loss</p> Signup and view all the answers

    Why do companies like PlayStation announce the cost of their consoles months before release?

    <p>To gauge the potential demand and adjust production accordingly</p> Signup and view all the answers

    What is the primary purpose of royalties that console companies make developers pay?

    <p>To ensure that bad developers stay out and maintain game quality</p> Signup and view all the answers

    What type of platform strategy does eHarmony lie between in competitive scope?

    <p>Differentiation and niche</p> Signup and view all the answers

    What are the solutions to the chicken and egg problem in platform strategy?

    <p>Subsidizing, exclusivity, and developing complements</p> Signup and view all the answers

    What factor weakens network effects in platform strategy?

    <p>Multi-homing</p> Signup and view all the answers

    What occurs in the platform industry when barriers to entry are high and network effects are strong?

    <p>Concentration</p> Signup and view all the answers

    In what way can network effects impact willingness to pay in platform strategy?

    <p>Increase willingness to pay</p> Signup and view all the answers

    What type of market situation leads to the existence of multiple platforms in platform strategy?

    <p>Heterogeneous consumer preferences</p> Signup and view all the answers

    What marks the establishment of the dominant design in competitive lifecycles?

    <p>Annealing point</p> Signup and view all the answers

    In which phase of the competitive lifecycle does uncertainty decrease and all innovation become process innovation?

    <p>Mature phase</p> Signup and view all the answers

    What led Disney to forward vertically integrate and launch Disney+?

    <p>Invention/adoption of high-speed internet</p> Signup and view all the answers

    What is crucial in the growth and mature phases of competitive lifecycles?

    <p>Process innovation</p> Signup and view all the answers

    What eventually supplants incumbent technologies and starts a new competitive lifecycle?

    <p>Disruptive innovations</p> Signup and view all the answers

    What led to over-entry and dropping profit margins in the growth phase of competitive lifecycles?

    <p>Deregulation of the European airline industry</p> Signup and view all the answers

    What type of network effects exist when the willingness to pay for a product depends on the number of other users?

    <p>Direct network effects</p> Signup and view all the answers

    Which company dominated two s-curves, first with DVDs and then with streaming?

    <p>Netflix</p> Signup and view all the answers

    What type of platform creates value primarily by enabling interactions between users with the potential for network effects?

    <p>Multi-sided platform</p> Signup and view all the answers

    Which company was slow to respond to Netflix's disruptive technology?

    <p>Blockbuster</p> Signup and view all the answers

    What type of business model includes transaction platforms and innovation platforms?

    <p>Platform business model</p> Signup and view all the answers

    How did Netflix make the leap from an old technology s-curve to a new technology s-curve?

    <p>By leveraging their existing subscriber base and recommendation algorithm</p> Signup and view all the answers

    What did Schumpeter coin as a process of industrial mutation?

    <p>Creative Destruction</p> Signup and view all the answers

    What is the premise of Schumpeterian Perspective?

    <p>Markets are dynamic, not static, and many changes come from technology.</p> Signup and view all the answers

    Where have we already seen Schumpeterian rents at work?

    <p>Netflix, Uber, and Airbnb</p> Signup and view all the answers

    What did Schumpeter identify as an essential part of capitalism?

    <p>Creative Destruction</p> Signup and view all the answers

    What type of companies exemplify Schumpeterian rents?

    <p>Disruptive innovators like Netflix and Uber</p> Signup and view all the answers

    What is critical to competition according to the Schumpeterian Perspective?

    <p>Timing and adaptation</p> Signup and view all the answers

    What type of network effects exist when the willingness to pay for a product depends on the number of other users?

    <p>Direct network effects</p> Signup and view all the answers

    What is the primary purpose of royalties that console companies make developers pay?

    <p>To compensate for the use of intellectual property</p> Signup and view all the answers

    What type of platform strategy does eHarmony lie between in competitive scope?

    <p>Multi-sided platform strategy</p> Signup and view all the answers

    What are the solutions to the chicken and egg problem in platform strategy?

    <p>Subsidizing one side of the platform</p> Signup and view all the answers

    What did Schumpeter consider as an essential part of capitalism?

    <p>Creative destruction</p> Signup and view all the answers

    What marks the establishment of the dominant design in competitive lifecycles?

    <p>When a single technology or product architecture becomes the standard</p> Signup and view all the answers

    In platform strategy, what factor can lead to a weakening of network effects?

    <p>Multi-homing</p> Signup and view all the answers

    What can increase willingness to pay in platform strategy?

    <p>Network effects</p> Signup and view all the answers

    In the platform industry, what occurs when barriers to entry are high and network effects are strong?

    <p>Concentration</p> Signup and view all the answers

    What is a viable strategy in the dating market if preferences are different?

    <p>Niche strategy</p> Signup and view all the answers

    What solutions are suggested for the chicken and egg problem in platform strategy?

    <p>Subsidizing, exclusivity, and developing complements</p> Signup and view all the answers

    What impact can heterogeneous consumer preferences have in platform strategy?

    <p>Lead to multiple platforms</p> Signup and view all the answers

    What is the primary focus in the emergent phase of competitive lifecycles?

    <p>Product innovation and differentiation to find consumer preferences</p> Signup and view all the answers

    What did the invention/adoption of high-speed internet lead Disney to do?

    <p>Forward vertically integrate (Disney+)</p> Signup and view all the answers

    What marks the establishment of the dominant design in competitive lifecycles?

    <p>The annealing point</p> Signup and view all the answers

    What characterizes the mature phase of competitive lifecycles?

    <p>All innovation becoming process innovation</p> Signup and view all the answers

    What eventually supplants incumbent technologies and starts a new competitive lifecycle?

    <p>Disruptive innovations</p> Signup and view all the answers

    What factors influence incumbent firms' success in adopting new technologies?

    <p>Large capital or expertise</p> Signup and view all the answers

    What is the primary pricing principle for a two-sided platform when deciding how to price each side?

    <p>Profit from the side that creates the most value for the other side</p> Signup and view all the answers

    What is the purpose of announcing the cost of consoles months before release in the gaming industry?

    <p>To ensure that the willingness to pay will be high</p> Signup and view all the answers

    What strategy did Nintendo use to overcome the chicken and the egg problem in the gaming industry?

    <p>Making their own games to serve as complements</p> Signup and view all the answers

    What is the sixth force in Porter's five forces model that affects the gaming industry?

    <p>Complements</p> Signup and view all the answers

    What type of network effect was associated with the example of the karate game in the gaming industry?

    <p>Negative network effect</p> Signup and view all the answers

    What should a firm generally do when deciding how to price each side of a two-sided platform?

    <p>Profit from the side that creates the most value for the other side</p> Signup and view all the answers

    Study Notes

    Netflix vs Blockbuster: Business Strategies and Platform Fundamentals

    • Netflix had high willingness to pay and lower average costs due to economies of scale
    • Netflix dominated two s-curves: first with DVDs, then with streaming
    • Blockbuster was slow to respond to Netflix's disruptive technology
    • Netflix's original business model was enabled by the advent of DVD and later by innovation with DVD by mail
    • Netflix made the leap from an old technology s-curve to a new technology s-curve by leveraging their existing subscriber base and recommendation algorithm
    • A platform is a technology, product, or service that creates value primarily by enabling interactions between users with the potential for network effects
    • Platforms enable interactions between two parties and can be one-sided or multi-sided
    • Network effects exist when the willingness to pay for a product depends on the number of other users
    • Platform business models include transaction platforms and innovation platforms
    • Examples of platforms include Visa (2-sided transaction), Amazon (2-sided transaction), and Playstation (2-sided innovation)
    • A grocery store is not a two-sided platform
    • A two-sided network has four network effects, while a three-sided network has nine network effects

    Competitive Lifecycles and Technology S-Curves

    • Invention of the internet increased threat of substitutes, lowered barriers to entry, decreased competitive advantage, and eroded value proposition in various industries
    • Deregulation of the European airline industry lowered barriers to entry, increased rivalry, and gave Ryanair an opportunity to thrive
    • Invention/adoption of high-speed internet decreased buyer power, increased barriers to entry, and led Disney to forward vertically integrate (Disney+)
    • Competitive lifecycles have three phases: Emergent, Growth, and Mature, each with distinct characteristics and challenges
    • Uncertainty is high in the emergent phase, with a focus on product innovation and differentiation to find consumer preferences
    • Process innovation lowers costs and is crucial in the growth and mature phases, while product innovation introduces new or significantly improved goods or services
    • The annealing point marks the establishment of the dominant design, reducing uncertainty and leading to the failure of firms that adopted losing standards
    • Growth phase includes shakeouts, where less efficient firms fail, and over-entry leads to dropping profit margins and firm failures
    • Mature phase is absent of uncertainty, with all innovation becoming process innovation and profit margins being difficult to predict
    • Disruptive innovations eventually supplant incumbent technologies, starting a new competitive lifecycle, and may appeal to fringe customers with novel attributes
    • Incumbent firms often fail to adapt to new technologies due to underestimating their value, rendered resources, and capabilities, or tradeoffs between short-term and long-term gains
    • Factors influencing incumbent firms' success in adopting new technologies include large capital or expertise, customer assurance, and complementary resources or capabilities.

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    Description

    Learn about the business strategies and platform fundamentals of Netflix and Blockbuster in this quiz. Explore how Netflix leveraged economies of scale and dominated s-curves, while Blockbuster struggled to respond to disruptive technology. Understand the concept of platforms, network effects, and different types of platform business models. Test your knowledge on examples of two-sided and three-sided platforms in this insightful quiz.

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