Competing When Network Effects Matter Study Guide
Competing When Network Effects Matter Study Guide

Competing When Network Effects Matter Study Guide

Source: University of Minnesota Libraries

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An information systems study guide from the University of Minnesota.

Competing When Network Effects Matter - Study Guide

Moving early matters in network markets—firms that move early can often use that time to establish a lead in users, switching costs, and complementary products that can be difficult for rivals to match.

Additional factors that can help a firm establish a network effects lead include subsidizing adoption; leveraging viral marketing, creating alliances to promote a product or to increase a service’s user base; redefining the market to appeal to more users; leveraging unique distribution channels to reach new customers; seeding the market with complements; encouraging the development of complements; and maintaining backward compatibility.

Established firms may try to make it difficult for rivals to gain compatibility with their users, standards, or product complements. Large firms may also create uncertainty among those considering adoption of a rival by preannouncing competing products.

Discussion Questions


​Is market entry timing important for network effects markets? Explain and offer an example to back up your point.


How might a firm subsidize adoption? Give an example.


Give an example of a partnership or alliance targeted at increasing network effects.


Is it ever advantageous for firms to give up control of a network and share it with others? Why or why not? Give examples to back up your point.


Do firms that dominate their markets with network effects risk government intervention? Why or why not? Explain through an example.


How did Sony seed the market for Blu-ray players?


What does backward compatibility mean and why is this important? What happens if a firm is not backward compatible?


What tactic did Apple use to increase the acceptability of the Mac platform to a broader population of potential users?


How has Apple kept clones at bay?


What are preannouncements? What is the danger in announcing a product too early? What is the term for negative impacts from premature product announcements?


How did PayPal subsidize adoption?


Name two companies that leveraged viral promotion to compete.


Name a product that is the result of the convergence of media players, cameras, and phones.


What is bundling? What are the upsides and downsides of bundling?


Why does Adobe allow the free download of Acrobat Reader?


What tactic might an established firm employ to make it impossible, or at least difficult, for a competitor to gain access to, or become compatible with, their product or service?


How do Apple, Microsoft, and Facebook encourage the development of complementary products?


What is the “congestion effect”? Give an example.


Do network effects apply in nontech areas? Give examples.

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