Ch 16 - Network Goods.pptx - Chapter 16 Competing for...

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Chapter 16 Competing for Monopoly:  Network Goods
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Overview Network goods are an important part of the  marketplace. They are usually produced by monopolies or  oligopolies. Competition is “for the market” rather than “in the  market”. Competition leads to strategic behavior. Markets may be contestable. 2
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Network good A good whose value to one customer increases the  more that other customers use the good. Telephones Facebook Microsoft Word Blu-ray discs Tofu (just kidding) Network externality (positive externality) REEF  Time 3
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Which of the following is NOT a network good? A) Snapchat B) Massively Multiplayer Online Games C) ebay D) Bugatti Veyron Automobile
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Which of the following is NOT a network good? A) Snapchat B) Massively Multiplayer Online Games C) ebay D) Bugatti Veyron Automobile
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6 Another example of a network good – Gaming Sites
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Monopolies and Oligopolies  Sell Network Goods Given the network externality (bigger is better), network goods are usually  supplied by monopolies or oligopolies. Software: Windows, Word, Excel, Adobe (pdf) Social media Facebook Dating sites – Match.com  Hardware standards:   DVD Railroad gauge Construction (2 x 4) Keyboards – QWERTY 7
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Monopolies and Oligopolies  Sell Network Goods Network goods typically involve one firm  providing a dominant standard at a high price. These markets also usually include a number  of other smaller firms offering a slightly  different product. These firms tend to service niche areas in the  market.
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Shorthand in the textbook – With network  goods, Firms compete  for the market   rather than  in  the market . 9
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Consequences… It is possible that the standard adopted might not be the “best”.  (Standard Wars are common.) A “sub-optimal” equilibrium Betamax versus VHS Betamax offered higher video quality than VHS. BUT VHS was cheaper and allowed for longer recording times on a single  tape. Urban legend – Betamax did not allow pornography. Blu-ray versus HD DVD Blu-ray more expensive but higher capacity Windows versus Mac iOS versus Android versus Windows  (Are network externalities as high  in the mobile market? If so, why?) ( REEF  Time) 10
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What type of cell phone do you use?
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