Platform Fundamentals and Network Effects Quiz

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Questions and Answers

What is the definition of a process innovation?

Introduction of a new or significantly improved production or delivery method

In which phase of the competitive lifecycle do we see growth and adoption, leading to a shakeout where firms die off?

Growth Phase

What is the annealing point in the competitive lifecycle?

The point at which the dominant design or standard is established

What was the impact of the invention/adoption of high-speed internet on Disney?

Decreased buyer power and increased barriers to entry Signup and view all the answers

What was the impact of the invention of the Internet on the threat of substitutes?

Increased threat of substitutes Signup and view all the answers

What was the impact of Ryanair deregulation on the European airline industry?

Lowered barriers to entry and increased rivalry Signup and view all the answers

According to Schumpeter, what is the essential fact about capitalism?

It undergoes a process of creative destruction, revolutionizing the economic structure. Signup and view all the answers

What leads to Disequilibrium according to the Schumpeterian perspective?

Change Signup and view all the answers

What are the two components of Equilibrium that contribute to Economic Profits (rents) according to Schumpeterian theory?

Environmental Determinants and Firm Specific Determinants Signup and view all the answers

What can Schumpeterian rents take the form of?

Technological change, preference change, regulation change Signup and view all the answers

According to the Schumpeterian perspective, what do markets primarily exhibit?

Dynamic characteristics rather than static ones Signup and view all the answers

What is the crux of the Schumpeterian Perspective?

Markets are dynamic; NOT static Signup and view all the answers

What characterizes the Emergent Phase of the competitive lifecycle?

High uncertainty, product innovation, and potentially high profit margins Signup and view all the answers

What does the Shakeout phase of the competitive lifecycle involve?

Failing firms as revenues plateau or decline Signup and view all the answers

What is the primary focus of the Mature Phase of the competitive lifecycle?

Mostly process-oriented innovation and lower profit margins Signup and view all the answers

What is the Technology S-Curve used to illustrate?

Disruptive innovations supplanting incumbent technologies and starting new competitive lifecycles Signup and view all the answers

What does process innovation involve in the context of the competitive lifecycle?

Implementation of new or significantly improved production or delivery methods Signup and view all the answers

What marks the point at which the dominant design or standard is established in the competitive lifecycle?

Annealing, or 'Dominant Design' Signup and view all the answers

Which type of platforms enable interactions between distinct groups?

Multi-sided platforms Signup and view all the answers

What are complements in the context of goods?

Goods that enhance the value of another with negative cross price elasticity Signup and view all the answers

What leads to second-mover advantage?

Demand uncertainty Signup and view all the answers

When do network effects exist?

When the willingness to pay depends on the number of other users Signup and view all the answers

What do intermediaries do in a platform context?

Buy from suppliers and resell to buyers Signup and view all the answers

What do positive network effects lead to?

Increased willingness to pay as the number of users increases Signup and view all the answers

What are the solutions to the chicken and egg problem?

Subsidize: give away or discount affiliation on one side Signup and view all the answers

What is the primary focus of the Schumpeterian perspective?

Dynamic market disequilibrium Signup and view all the answers

What are the components of Platform Affiliation?

Setup, Ongoing, and Termination Signup and view all the answers

What did Uber do differently in comparison to Sidecar?

Lowered switching costs and prioritized growth/network effects Signup and view all the answers

What costs matter the most in multi-homing?

Ongoing costs Signup and view all the answers

How should platforms price each side?

Platforms should profit from the side with the more inelastic demand or higher WTP Signup and view all the answers

What are multi-homing costs?

Costs/investments incurred by user due to platform affiliation Signup and view all the answers

What is the Chicken and the Egg problem in the context of platform development?

The challenge of getting a platform started when both sides depend on one another Signup and view all the answers

What are the solutions to the Chicken and Egg Problem?

Subsidizing, exclusivity, developing or buying complements, providing cheap/free tools, offering standalone value Signup and view all the answers

According to the text, how should platforms price each side?

Platforms should profit from the side with the more inelastic demand or higher WTP that adds least value (or diminishes value) for others Signup and view all the answers

What did Uber do differently compared to Sidecar?

Lowered switching costs and prioritized growth/network effects Signup and view all the answers

What is the Schumpeterian perspective on markets?

Markets are dynamic, not static, and economic rents come from changes and opportunities Signup and view all the answers

Study Notes

Platform Fundamentals and Network Effects

Complements are goods that enhance the value of another with negative cross price elasticity.
Demand uncertainty leads to second-mover advantage.
Platforms enable interactions between users with network effects.
Physical platforms include financial services and transportation.
Intermediaries buy from suppliers and resell to buyers.
Platforms disintermediate and give control over product quality, pricing, etc. to participants.
One-sided platforms enable interactions among a single group, while multi-sided platforms enable interactions between distinct groups.
Network effects exist when the willingness to pay or affiliate depends on the number of other users of the same product.
Network effects are demand-side economies of scale that increase value creation.
Positive network effects increase willingness to pay as the number of users increases.
Direct and indirect network effects can be positive or negative.
Transaction platforms enable direct exchange, while innovation platforms facilitate the development of complementary products.