MB105 Lecture Notes - Lecture 4: Network Effect, Complementary Good, Switching Barriers
2 Jun 2017
School
Department
Course
Professor
Document Summary
When network effect are present, the value of a product or service increases as the number of uses grows. More than one entity connecting together to get value ex. You need 2 phones to communicate, one alone won"t do anything. The more users/devices you add to these networks, the more value there is. The value derived from network effects comes from three sources: Staying power cost of switching also determines whether or not you stay within a network. Low= not expensive to switch/get out, high=expensive to switch/get out. Firms are very aggressive in the early stages of these industries: Battling a leader with network effects is tough. Expand by redefining the market to bring in new categories of users or through convergence ex. For incumbents, constantly innovate to create a moving target and block rival efforts to access your network. For large firms with well-known followers, make preannouncements, fud fear uncertainty doubt ex.
