60 Questions
What did Schumpeter coin as a process of industrial mutation?
Creative Destruction
According to Schumpeter, where do economic rents come from?
Changes, which lead to opportunities
What did Schumpeter consider as an essential part of capitalism?
Creative Destruction
What did Schumpeter believe was critical to competition?
Timing and adaptation
What is the premise of Schumpeterian Perspective?
Markets are dynamic, not static
What did Schumpeter identify as a process that incessantly revolutionizes the economic structure from within?
Creative Destruction
When starting a platform, firms should always begin with as many sides as possible to maximize the network effects. True or false?
False
When deciding how to price each side of a two-sided platform, a firm should generally profit from (charge) the side that:
Creates the least value for the other side
Complements in the gaming industry enhance the value of another and are associated with:
Negative cross-price elasticity
What strategy did Nintendo use to overcome the chicken and the egg problem in the gaming industry?
Subsidizing by selling consoles at a loss
Why do companies like PlayStation announce the cost of their consoles months before release?
To gauge the potential demand and adjust production accordingly
What is the primary purpose of royalties that console companies make developers pay?
To ensure that bad developers stay out and maintain game quality
What type of platform strategy does eHarmony lie between in competitive scope?
Differentiation and niche
What are the solutions to the chicken and egg problem in platform strategy?
Subsidizing, exclusivity, and developing complements
What factor weakens network effects in platform strategy?
Multi-homing
What occurs in the platform industry when barriers to entry are high and network effects are strong?
Concentration
In what way can network effects impact willingness to pay in platform strategy?
Increase willingness to pay
What type of market situation leads to the existence of multiple platforms in platform strategy?
Heterogeneous consumer preferences
What marks the establishment of the dominant design in competitive lifecycles?
Annealing point
In which phase of the competitive lifecycle does uncertainty decrease and all innovation become process innovation?
Mature phase
What led Disney to forward vertically integrate and launch Disney+?
Invention/adoption of high-speed internet
What is crucial in the growth and mature phases of competitive lifecycles?
Process innovation
What eventually supplants incumbent technologies and starts a new competitive lifecycle?
Disruptive innovations
What led to over-entry and dropping profit margins in the growth phase of competitive lifecycles?
Deregulation of the European airline industry
What type of network effects exist when the willingness to pay for a product depends on the number of other users?
Direct network effects
Which company dominated two s-curves, first with DVDs and then with streaming?
Netflix
What type of platform creates value primarily by enabling interactions between users with the potential for network effects?
Multi-sided platform
Which company was slow to respond to Netflix's disruptive technology?
Blockbuster
What type of business model includes transaction platforms and innovation platforms?
Platform business model
How did Netflix make the leap from an old technology s-curve to a new technology s-curve?
By leveraging their existing subscriber base and recommendation algorithm
What did Schumpeter coin as a process of industrial mutation?
Creative Destruction
What is the premise of Schumpeterian Perspective?
Markets are dynamic, not static, and many changes come from technology.
Where have we already seen Schumpeterian rents at work?
Netflix, Uber, and Airbnb
What did Schumpeter identify as an essential part of capitalism?
Creative Destruction
What type of companies exemplify Schumpeterian rents?
Disruptive innovators like Netflix and Uber
What is critical to competition according to the Schumpeterian Perspective?
Timing and adaptation
What type of network effects exist when the willingness to pay for a product depends on the number of other users?
Direct network effects
What is the primary purpose of royalties that console companies make developers pay?
To compensate for the use of intellectual property
What type of platform strategy does eHarmony lie between in competitive scope?
Multi-sided platform strategy
What are the solutions to the chicken and egg problem in platform strategy?
Subsidizing one side of the platform
What did Schumpeter consider as an essential part of capitalism?
Creative destruction
What marks the establishment of the dominant design in competitive lifecycles?
When a single technology or product architecture becomes the standard
In platform strategy, what factor can lead to a weakening of network effects?
Multi-homing
What can increase willingness to pay in platform strategy?
Network effects
In the platform industry, what occurs when barriers to entry are high and network effects are strong?
Concentration
What is a viable strategy in the dating market if preferences are different?
Niche strategy
What solutions are suggested for the chicken and egg problem in platform strategy?
Subsidizing, exclusivity, and developing complements
What impact can heterogeneous consumer preferences have in platform strategy?
Lead to multiple platforms
What is the primary focus in the emergent phase of competitive lifecycles?
Product innovation and differentiation to find consumer preferences
What did the invention/adoption of high-speed internet lead Disney to do?
Forward vertically integrate (Disney+)
What marks the establishment of the dominant design in competitive lifecycles?
The annealing point
What characterizes the mature phase of competitive lifecycles?
All innovation becoming process innovation
What eventually supplants incumbent technologies and starts a new competitive lifecycle?
Disruptive innovations
What factors influence incumbent firms' success in adopting new technologies?
Large capital or expertise
What is the primary pricing principle for a two-sided platform when deciding how to price each side?
Profit from the side that creates the most value for the other side
What is the purpose of announcing the cost of consoles months before release in the gaming industry?
To ensure that the willingness to pay will be high
What strategy did Nintendo use to overcome the chicken and the egg problem in the gaming industry?
Making their own games to serve as complements
What is the sixth force in Porter's five forces model that affects the gaming industry?
Complements
What type of network effect was associated with the example of the karate game in the gaming industry?
Negative network effect
What should a firm generally do when deciding how to price each side of a two-sided platform?
Profit from the side that creates the most value for the other side
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.
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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