"Economics of Networks" by Alyssa Musante

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"Economics of Networks" by Alyssa Musante by Mind Map: "Economics of Networks" by Alyssa Musante

1. Positive Feedback

1.1. Success begets success. Strong companies get stronger, weak companies get weaker

1.2. This can lead to a "winner take all" market, where one or few companies dominate an industry

2. Economies of Scale

2.1. large companies often experience positive feedback in their early years of success. This is often due to the size of the company.

2.2. "Supply side" economies of scale often experience positive feedback because they often have lower product costs . This can be seen in traditional companies such as GM.

2.3. "Demand Side" economies of scale experience positive feedback due to the fact that their products are widely used, such as Microsoft

3. Oligopoly

3.1. Economies of scale often dominate a market, often eliminating most other competition within that industry.

3.2. Positive feedback often perpetuates oligopolies, as strong companies get stronger and often beat out weaker companies vying for a position within the industry

4. Network Externalities

4.1. The "network" of a company is its user base, and the company is the "sponsor" of this network. Apple is the sponsor of users in the "Apple Network"

4.2. The "externalities" aspect of this term refers to the usefulness of the product due to the other users within the network also using the product. A fax machine is more useful if more people have them to send and receive faxes.

5. Collective Switching Costs

5.1. What are the costs associated with moving from one network to another?

5.2. Network Externalities make it much harder for users to switch from one network to another, especially if there are more users in the origin network than the destination.

6. Market tips

6.1. Strong scale economies can often make a market "Tippy", meaning a market can tip in favor of one company over the other. Sony and Microsoft are good examples of this in the console gaming market. Both have popular, high demand consoles. The market is susceptible to tip in favor of one over the other at any given time

6.2. Market tips create a "winner takes all" phenomenon in terms of market share. Where two companies dominate 50% of market shares each, market tips can cause one company to lean towards near 100% of market shares, and the other company to lose most of theirs.

7. Openness vs Control

7.1. Control is essentially the concept of keeping a product proprietary. One example is closing off developer access and filtering down developer contribution (IE, Apple SDK and app store).

7.2. Openness is the concept of "opening" a product to innovation. It can mean many things in terms of technical specifications, from allowing developer access, to forming alliances with competitor companies to create technology standards and preventing user lock-in.