Management And Economics Of Network Industries (Technology And Innovation) at LMU München | Flashcards & Summaries

Lernmaterialien für Management and Economics of Network Industries (Technology and Innovation) an der LMU München

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TESTE DEIN WISSEN
Explain the Pricing structures of Video games vs. PC operating systems considering the conclusions made in the "Model of Weyl" and the "Model of Hagiu".
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TESTE DEIN WISSEN
The "Model of Hagiu" additionally to the "Model of Weyl" suggests that the producers become more powerful if there is a high demand for variety in the products --> so they should be charged more fees e.g.. Gaming Consoles: Developers have high fixed costs and low variable costs (close to zero). So the net benefit of every consumer transaction is quite high (price of a game minus royalties) --> Consumers have to bear a high price of buying a game. So the net benefit of many consumers is rather low. --> So Developers pay more than Consumers. + demand vor variety is high PC operating systems: --> not much demand for variety. So less powerful producers --> the don't benefit from additional Consumers that much so the developers should pay so much.. --> Operating systems, especially Windows, are sold above costs while developers receive free software development kits and need not pay royalties.
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TESTE DEIN WISSEN
Network effects are not always strong enough to force standardization. Name & explain three effects limiting the degree of dominance of a single technology.
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TESTE DEIN WISSEN
- Consumer heterogeneity ---> can help niche products survive despite a dominant competitor --> preference for variety - Local network effects ---> Local network effects occur when the utility an agent obtains from choosing a specific product is increasing in the number of agents within his social neighbourhood that choose the same product. --> Overall network size is irrelevant --> e.g. Language - Existence of a sustainable mass of complementary products ---> With indirect network effects, there may exist a critical number beyond which an additional complementary product does not confer any significant additional value. --> e.g. if most users want to play a small selection of games, any system that can provide a sufficient number of such blockbuster games is viable.
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TESTE DEIN WISSEN
How can a new technology replace an old one which already has an installed base of users?
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TESTE DEIN WISSEN
difference between conventional goods and network technologies --> people also consider the network effects here. --> so it is not all only about the stand-alone value of the new technology --> Old tech has an advantage in Network size.. Solutions: - Setting a "no support" deadline - Having a really high stand-alone value - backwards compatibility ---> But, new tech doesn't always need to replace the old one..
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TESTE DEIN WISSEN
What is a "dominant strategy" of one Player, in a a Game of Strategic Adoption?
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TESTE DEIN WISSEN
When a specific reaction (e.g. choosing the old technology) is ALWAYS the best response, no matter what the other player does.
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TESTE DEIN WISSEN
What is Inertia/excess- Inertia and Momentum?
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TESTE DEIN WISSEN
Inertia only means that the new technology doesn't get adopted. --> inertia on its own (no exess) can also be positive --> high switching cost ect.. Excess Inertia implies that the new technology would generate net benefits but no one will make the first move. --> technology doeasnt move as much as we would want to. Excess Momentum is the oposite, where a new technology gets adopted, even though is would generate net benefits to stick with the old one.
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TESTE DEIN WISSEN
How would the availability of complete Information affect excess inertia? What problems would occur if one would try to achieve that through simple communication?
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TESTE DEIN WISSEN
incomplete information causes excess inertia. --> so with complete Information Excess inertia would disappear. both forms of it. BUT: really hard to achieve in real life. best try: communication. --> problem: the people that are slightly opposed would exaggerate and say "they never switch" even though they eventually would... So the Problem of Symmetric excess inertia could be solved, but asymmetric excess inertia could even get worse through increased communication.
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TESTE DEIN WISSEN
What happens if you have other choices than just adopting the new technology or not (e.g. different versions of the new technology)?
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TESTE DEIN WISSEN
If you have to different versions of a tech: the likelyhood of a person really liking one of the too (start the band wagon) gets higher. confusion effect might get worse though --> so either a second tech. mekes things worse or makes it better
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TESTE DEIN WISSEN
What is the difference between a disequilibrium- and a equilibrium approach?
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TESTE DEIN WISSEN
2 different basic assumptions on the diffusion process. disequilibrium approach says, that there is a point in time where not everybody behaves optimally. --> some people adopt, some don't, even though they should adopt.--> epidemic model suggests that, because the people that don't know about a new tech would adopt if they just knew... Equilibrium approach says that at anybody is happy with there decision, even if you tell them about the new tech. --> probit/rank approach & Strategic approach assume an equilibrium where everybody chooses consciously. --> they differ only in the amount of interaction between adopters
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TESTE DEIN WISSEN
Gruber and Verboven Study goes deeper into the differences between Countries. Name 2 country specific characteristics.
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TESTE DEIN WISSEN
1. Waiting list for fixed line connection: --> A high unsatisfied demand for phones might increase diffusion of mobile phones. ---> Yet, a low relative level of fixed line telephony might hinder diffusion (no-one to call). Result: A large fixed-line waiting list initially lowers mobile penetration rates but leads to higher growth rates later on. 2. Large fixed network: ---> Might foster diffusion as the utility from owning a mobile phone is high even if the penetration of mobile phones is low. --->Might hinder diffusion since the need for mobile phones is lower if everyone has a fixed line connection. Result: A large fixed network has a positive impact on mobile phone diffusion.
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TESTE DEIN WISSEN
Does the Pricing structure (how much each side pays) of a Platform market affect the Market outcome (e.g. total volume of transactions)?
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TESTE DEIN WISSEN
Intuition could lead us to expect the Market outcome not to change. Why? --> comparison to Taxes in traditional markets. --> In equilibrium, market outcome is independent of who pays the tax! (Supply or demand side) --> so if we see taxes as the "fees" in platform market we could expect the same outcome... BUT: We define a two-sided market as one in which the volume of transactions between end-users depends on the structure and not only on the overall level of the fees charged by the platform. SO in Platform markets the volume of transaction (e.g.) DOES depend on the Pricing structure.
Lösung ausblenden
TESTE DEIN WISSEN
Name 4 logics common in traditional markets, that are not transferable to platform markets.
Lösung anzeigen
TESTE DEIN WISSEN
1.An efficient price structure should be set to reflect relative costs. 2.A high price-cost margin indicates market power. --> no, competition needs to be looked at 3.A price below marginal cost indicates predation. --> low prices can just reflect the value of the other market side.. 4.In mature markets, price structures that do not reflect costs are no longer justified.
Lösung ausblenden
TESTE DEIN WISSEN
Is it always a good strategy for a platform to just attract more Producers of complementary products?
Lösung anzeigen
TESTE DEIN WISSEN
- Platform owners typically encourage large numbers of developers for complementary applications BUT Caution: - Quality control - increasing producers also intensifies competition, which may crowd out investment - Product scope of individual producers remains narrow and unchanged when platform grows --> Importance of specializiation and comparative advantage - increasing the number of producers decreases innovation incentives However, number of producers positively affects the variety of applications on the platform.. Solution for most of it is to increase the heterogeneity between producers! (different genres)
Lösung ausblenden
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Q:
Explain the Pricing structures of Video games vs. PC operating systems considering the conclusions made in the "Model of Weyl" and the "Model of Hagiu".
A:
The "Model of Hagiu" additionally to the "Model of Weyl" suggests that the producers become more powerful if there is a high demand for variety in the products --> so they should be charged more fees e.g.. Gaming Consoles: Developers have high fixed costs and low variable costs (close to zero). So the net benefit of every consumer transaction is quite high (price of a game minus royalties) --> Consumers have to bear a high price of buying a game. So the net benefit of many consumers is rather low. --> So Developers pay more than Consumers. + demand vor variety is high PC operating systems: --> not much demand for variety. So less powerful producers --> the don't benefit from additional Consumers that much so the developers should pay so much.. --> Operating systems, especially Windows, are sold above costs while developers receive free software development kits and need not pay royalties.
Q:
Network effects are not always strong enough to force standardization. Name & explain three effects limiting the degree of dominance of a single technology.
A:
- Consumer heterogeneity ---> can help niche products survive despite a dominant competitor --> preference for variety - Local network effects ---> Local network effects occur when the utility an agent obtains from choosing a specific product is increasing in the number of agents within his social neighbourhood that choose the same product. --> Overall network size is irrelevant --> e.g. Language - Existence of a sustainable mass of complementary products ---> With indirect network effects, there may exist a critical number beyond which an additional complementary product does not confer any significant additional value. --> e.g. if most users want to play a small selection of games, any system that can provide a sufficient number of such blockbuster games is viable.
Q:
How can a new technology replace an old one which already has an installed base of users?
A:
difference between conventional goods and network technologies --> people also consider the network effects here. --> so it is not all only about the stand-alone value of the new technology --> Old tech has an advantage in Network size.. Solutions: - Setting a "no support" deadline - Having a really high stand-alone value - backwards compatibility ---> But, new tech doesn't always need to replace the old one..
Q:
What is a "dominant strategy" of one Player, in a a Game of Strategic Adoption?
A:
When a specific reaction (e.g. choosing the old technology) is ALWAYS the best response, no matter what the other player does.
Q:
What is Inertia/excess- Inertia and Momentum?
A:
Inertia only means that the new technology doesn't get adopted. --> inertia on its own (no exess) can also be positive --> high switching cost ect.. Excess Inertia implies that the new technology would generate net benefits but no one will make the first move. --> technology doeasnt move as much as we would want to. Excess Momentum is the oposite, where a new technology gets adopted, even though is would generate net benefits to stick with the old one.
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Q:
How would the availability of complete Information affect excess inertia? What problems would occur if one would try to achieve that through simple communication?
A:
incomplete information causes excess inertia. --> so with complete Information Excess inertia would disappear. both forms of it. BUT: really hard to achieve in real life. best try: communication. --> problem: the people that are slightly opposed would exaggerate and say "they never switch" even though they eventually would... So the Problem of Symmetric excess inertia could be solved, but asymmetric excess inertia could even get worse through increased communication.
Q:
What happens if you have other choices than just adopting the new technology or not (e.g. different versions of the new technology)?
A:
If you have to different versions of a tech: the likelyhood of a person really liking one of the too (start the band wagon) gets higher. confusion effect might get worse though --> so either a second tech. mekes things worse or makes it better
Q:
What is the difference between a disequilibrium- and a equilibrium approach?
A:
2 different basic assumptions on the diffusion process. disequilibrium approach says, that there is a point in time where not everybody behaves optimally. --> some people adopt, some don't, even though they should adopt.--> epidemic model suggests that, because the people that don't know about a new tech would adopt if they just knew... Equilibrium approach says that at anybody is happy with there decision, even if you tell them about the new tech. --> probit/rank approach & Strategic approach assume an equilibrium where everybody chooses consciously. --> they differ only in the amount of interaction between adopters
Q:
Gruber and Verboven Study goes deeper into the differences between Countries. Name 2 country specific characteristics.
A:
1. Waiting list for fixed line connection: --> A high unsatisfied demand for phones might increase diffusion of mobile phones. ---> Yet, a low relative level of fixed line telephony might hinder diffusion (no-one to call). Result: A large fixed-line waiting list initially lowers mobile penetration rates but leads to higher growth rates later on. 2. Large fixed network: ---> Might foster diffusion as the utility from owning a mobile phone is high even if the penetration of mobile phones is low. --->Might hinder diffusion since the need for mobile phones is lower if everyone has a fixed line connection. Result: A large fixed network has a positive impact on mobile phone diffusion.
Q:
Does the Pricing structure (how much each side pays) of a Platform market affect the Market outcome (e.g. total volume of transactions)?
A:
Intuition could lead us to expect the Market outcome not to change. Why? --> comparison to Taxes in traditional markets. --> In equilibrium, market outcome is independent of who pays the tax! (Supply or demand side) --> so if we see taxes as the "fees" in platform market we could expect the same outcome... BUT: We define a two-sided market as one in which the volume of transactions between end-users depends on the structure and not only on the overall level of the fees charged by the platform. SO in Platform markets the volume of transaction (e.g.) DOES depend on the Pricing structure.
Q:
Name 4 logics common in traditional markets, that are not transferable to platform markets.
A:
1.An efficient price structure should be set to reflect relative costs. 2.A high price-cost margin indicates market power. --> no, competition needs to be looked at 3.A price below marginal cost indicates predation. --> low prices can just reflect the value of the other market side.. 4.In mature markets, price structures that do not reflect costs are no longer justified.
Q:
Is it always a good strategy for a platform to just attract more Producers of complementary products?
A:
- Platform owners typically encourage large numbers of developers for complementary applications BUT Caution: - Quality control - increasing producers also intensifies competition, which may crowd out investment - Product scope of individual producers remains narrow and unchanged when platform grows --> Importance of specializiation and comparative advantage - increasing the number of producers decreases innovation incentives However, number of producers positively affects the variety of applications on the platform.. Solution for most of it is to increase the heterogeneity between producers! (different genres)
Management and Economics of Network Industries (Technology and Innovation)

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