MGEC40H3 Lecture Notes - Lecture 10: Berkshire Hathaway, Network Effect, Whatsapp
13 Dec 2018
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Document Summary
Notice that the largest and most valuable companies today are all technology firms: top 5 in the u. s. today are apple, amazon, google, microsoft and facebook (ignoring. Amazon either did not exist or were much smaller: obviously, technology has changed and improved the outcomes of technology firms, but there are clear rewards to large scale in the technology sector, driven by firms enjoying network externalities. Firms such as these are known as platforms: platforms are constantly evolving. For now, we think of platforms as having a few features: produce multiple goods, cater to distinct sets of consumers, deal with hardware/software issues, enjoy network externalities, are often in media/technology sectors, are growing in importance. But this is not the case when externalities exist): these can be either positive or negative. If positive, society tends to consume/produce too little, and optimal policy involves subsidies. If negative, society tends to consume/produce too much, and optimal policy involves taxation.
