Question 1

Which of the following is the best definition of a network good?

Accepted Answer

A good whose value to one customer increases as more people use it.

Question 2

Which of the following is NOT a network good?

Accepted Answer

Bugatti Chiron Automobile

Question 3

Why do network goods often result in monopoly or oligopoly market structures?

Accepted Answer

Because network externalities make larger networks more valuable, leading to dominance by one or a few firms.

Question 4

In the context of network goods, what does 'competition for the market' mean?

Accepted Answer

Firms compete to become the dominant provider, after which competition is limited.

Question 5

Suppose a platform firm connects two sides of a market: users and advertisers. If the cross-side network externality is stronger for advertisers, what pricing strategy is the platform most likely to use?

Accepted Answer

Provide the product for free to users and charge advertisers.

Question 6

Which of the following scenarios best illustrates a sub-optimal equilibrium in a network goods market?

Accepted Answer

A market where a product with lower quality but larger network adoption becomes the standard.

Question 7

Consider the following payoff matrix for two users choosing between Docs and Word:

$$\begin{array}{c|cc}
 & 	ext{Docs} & 	ext{Word} \
\hline
	ext{Docs} & (10,10) & (3,3) \
	ext{Word} & (3,3) & (11,11) \
\end{array}$$

Which outcome(s) are Nash equilibria?

Accepted Answer

Both (Docs, Docs) and (Word, Word)

Question 8

What is a key factor that increases the contestability of a network goods market?

Accepted Answer

Few or no legal barriers to entry

Question 9

A platform firm wants to maximize total transaction value. Which of the following strategies is most likely to help achieve this goal?

Accepted Answer

Lower transaction costs and increase the number of transactions.

Question 10

Which of the following is an example of a platform firm?

Accepted Answer

Uber

Question 11

Suppose a market is highly contestable. What is the likely long-term outcome for the dominant firm?

Accepted Answer

The dominant firm may be replaced by new entrants over time.

Question 12

Which of the following is a common strategy firms use to reduce contestability in network goods markets?

Accepted Answer

Offering consumer loyalty plans

Question 13

If a platform firm faces two sides of a market, and one side has much more elastic demand, what is the profit-maximizing price for that side likely to be?

Accepted Answer

Zero, to maximize participation and cross-side externalities

Question 14

Which of the following best describes a Nash Equilibrium?

Accepted Answer

A situation where no player can improve their payoff by unilaterally changing their strategy.

Question 15

In the context of network goods, what is a positive network externality?

Accepted Answer

When the value of a good increases as more people use it.

Question 16

Which of the following is most likely to be true in a network goods market?

Accepted Answer

One dominant firm, perhaps with a few smaller niche firms, is typical.

Question 17

Suppose a new social media platform enters a market dominated by an incumbent. Which factor would most help the new entrant succeed?

Accepted Answer

Low fixed costs of entry and open-minded consumers

Question 18

Which of the following is a real-world example of a 'standard war' in network goods markets?

Accepted Answer

Betamax versus VHS

Question 19

If a platform firm sets a price of $$0$$ for one side of the market, what is the most likely reason?

Accepted Answer

To increase the number of users on that side and enhance cross-side network externalities.

Networks, Platforms, and the Economics of “Free Goods”

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