Podcast
Questions and Answers
When starting a platform, firms should always begin with as many sides as possible to maximize the network effects. Is this statement true or false?
When starting a platform, firms should always begin with as many sides as possible to maximize the network effects. Is this statement true or false?
- True
- False (correct)
- Starting with as few sides as possible actually maximizes network effects
- It depends on the industry and market conditions
When deciding how to price each side of a two-sided platform, a firm should generally profit from (charge) the side that:
When deciding how to price each side of a two-sided platform, a firm should generally profit from (charge) the side that:
- Does not affect the value for the other side
- Creates the least value for the other side (correct)
- Both a and b are valid strategies depending on the market conditions
- Creates the most value for the other side
Why do companies like PlayStation announce the console's price months before release?
Why do companies like PlayStation announce the console's price months before release?
- To influence consumer surplus
- To discourage competition
- To create a negative network effect
- To inform developers about the selling price and potential high willingness to pay (correct)
According to the text, which of the following is a characteristic of Schumpeterian rents?
According to the text, which of the following is a characteristic of Schumpeterian rents?
What did Schumpeter refer to as 'creative destruction'?
What did Schumpeter refer to as 'creative destruction'?
What is emphasized as critical to competition from a Schumpeterian perspective?
What is emphasized as critical to competition from a Schumpeterian perspective?
What are multi-homing costs in the context of platform strategy?
What are multi-homing costs in the context of platform strategy?
What is the impact of heterogeneous consumer preferences on platform development?
What is the impact of heterogeneous consumer preferences on platform development?
How do solutions to the chicken and egg problem in platform development address challenges?
How do solutions to the chicken and egg problem in platform development address challenges?
Which phase of the competitive lifecycle is characterized by uncertainty regarding consumer preferences and demand, leading to a focus on product innovation and differentiation?
Which phase of the competitive lifecycle is characterized by uncertainty regarding consumer preferences and demand, leading to a focus on product innovation and differentiation?
What type of innovation involves the implementation of new or significantly improved production or delivery methods?
What type of innovation involves the implementation of new or significantly improved production or delivery methods?
Why didn't Netflix enter the market earlier?
Why didn't Netflix enter the market earlier?
What primarily enabled Netflix to have lower average costs and higher willingness to pay?
What primarily enabled Netflix to have lower average costs and higher willingness to pay?
Why did Blockbuster's Total Access fail?
Why did Blockbuster's Total Access fail?
What defines a platform business model?
What defines a platform business model?
What are the two components of Equilibrium that contribute to Economic Profits (rents)?
What are the two components of Equilibrium that contribute to Economic Profits (rents)?
What can Schumpeterian rents take the form of?
What can Schumpeterian rents take the form of?
What does the Schumpeterian perspective argue?
What does the Schumpeterian perspective argue?
What is the crux of the Schumpeterian Perspective?
What is the crux of the Schumpeterian Perspective?
What is difficult in changing markets according to Schumpeter?
What is difficult in changing markets according to Schumpeter?
What leads to Disequilibrium according to Schumpeter?
What leads to Disequilibrium according to Schumpeter?
What does Schumpeter define as an essential fact about capitalism?
What does Schumpeter define as an essential fact about capitalism?
What characterizes complements in the context of platforms?
What characterizes complements in the context of platforms?
What is the impact of high demand uncertainty in the context of platforms?
What is the impact of high demand uncertainty in the context of platforms?
What do platforms enable between users?
What do platforms enable between users?
What do intermediaries do in the context of platforms?
What do intermediaries do in the context of platforms?
What is the primary impact of platforms on interactions between suppliers and buyers?
What is the primary impact of platforms on interactions between suppliers and buyers?
What type of platforms enable interactions among a single group?
What type of platforms enable interactions among a single group?
In what way do network effects impact willingness to pay for a product?
In what way do network effects impact willingness to pay for a product?
Which phase of the competitive lifecycle is characterized by failing firms as revenues plateau or decline?
Which phase of the competitive lifecycle is characterized by failing firms as revenues plateau or decline?
What is the primary characteristic of the Emergent Phase of the competitive lifecycle?
What is the primary characteristic of the Emergent Phase of the competitive lifecycle?
What marks the point at which the dominant design or standard is established, reducing uncertainty in the competitive lifecycle?
What marks the point at which the dominant design or standard is established, reducing uncertainty in the competitive lifecycle?
What type of innovation involves introducing a new or significantly improved product or service?
What type of innovation involves introducing a new or significantly improved product or service?
What does the Technology S-Curve illustrate in the context of competitive lifecycles?
What does the Technology S-Curve illustrate in the context of competitive lifecycles?
What is the primary focus of the Mature Phase in the competitive lifecycle?
What is the primary focus of the Mature Phase in the competitive lifecycle?
What do Schumpeterian Rents come from, according to the Schumpeterian perspective?
What do Schumpeterian Rents come from, according to the Schumpeterian perspective?
What did Schumpeter refer to as 'creative destruction'?
What did Schumpeter refer to as 'creative destruction'?
What primarily enabled Netflix to have lower average costs and higher willingness to pay?
What primarily enabled Netflix to have lower average costs and higher willingness to pay?
What is emphasized as critical to competition from a Schumpeterian perspective?
What is emphasized as critical to competition from a Schumpeterian perspective?
What defines a platform business model?
What defines a platform business model?
What are multi-homing costs in the context of platform strategy?
What are multi-homing costs in the context of platform strategy?
What type of innovation involves the implementation of new or significantly improved production or delivery methods?
What type of innovation involves the implementation of new or significantly improved production or delivery methods?
What are Schumpeterian rents derived from?
What are Schumpeterian rents derived from?
What primarily led to decreased buyer power and increased barriers to entry for Disney?
What primarily led to decreased buyer power and increased barriers to entry for Disney?
Why do firms die in the annealing phase of competitive lifecycles?
Why do firms die in the annealing phase of competitive lifecycles?
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Study Notes
Netflix vs Blockbuster and Platform Fundamentals
- Netflix had lower average costs and higher willingness to pay due to the cheaper distribution centers and economies of scale.
- Netflix dominated two s-curves, first with DVDs and then with streaming, while facing different Porter's Five (Six) Forces in each industry.
- Blockbuster was slow to respond to Netflix's innovation, as Netflix's original business model was only possible with the disruptive technology of DVD by mail.
- Blockbuster's Total Access failed due to its high underlying cost structure and its attempt to replicate everything Netflix was doing.
- Netflix made the leap from the old technology s-curve to the new technology s-curve using their existing subscriber base, data, and recommendation algorithm.
- A platform is a technology, product, or service that primarily creates value by enabling interactions between users with the potential for network effects.
- Platforms must enable interactions between at least two parties and can be digital or non-digital, such as financial services or transportation.
- Platforms can be one-sided (enabling interactions among a single group) or multi-sided (involving multiple distinct groups).
- Network effects exist when the willingness to pay for a product depends on the number of other users, and can be positive or negative.
- Platforms can have direct (on one's own side) or indirect (on another side) network effects, with diminishing returns to increased customers.
- There are different types of platform business models, including transaction platforms (enabling direct exchange) and innovation platforms (facilitating complementary product development).
- Examples of single-sided, multi-sided, transaction, and innovation platforms were provided, and a mini quiz tested understanding of platform fundamentals.
Schumpeterian Rents and Competitive Lifecycles
- Economic rents come from changes and opportunities in the Schumpeterian perspective.
- Examples of Schumpeterian Rents in specific cases such as Ebony, Ryanair, and Disney are provided.
- The competitive lifecycle follows the S-curve and is characterized by phases such as Emergent, Growth, Shakeout, and Mature.
- The Emergent Phase is characterized by uncertainty, product innovation, and potentially high profit margins.
- Process innovation refers to the implementation of new or significantly improved production or delivery methods.
- Product innovation involves introducing a new or significantly improved product or service.
- Annealing, or "Dominant Design," marks the point at which the dominant design or standard is established, reducing uncertainty.
- The Growth Phase sees reduced uncertainty, increased process innovation, and a rapid increase in revenues.
- The Shakeout phase is characterized by failing firms as revenues plateau or decline.
- The Mature Phase involves very little uncertainty, mostly process-oriented innovation, and lower profit margins.
- The Technology S-Curve shows how disruptive innovations eventually supplant incumbent technologies, starting new competitive lifecycles.
- Examples of technology S-curves include Hunting → Farming → Science/Plant-based foods and VCS → DVD → Streaming.
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