) Two airlines have market power on different routes. Sprint is the only
airline on the route from A to B, and Beta has the only flights from B to C.
Sprint can sell a flight from A to C to consumers by buying a flight from Beta
on the B to C route. Why might you expect that this flight will have a higher
price than if Sprint had the only flights on the routes B to C and A to B?
2) A studio produces a popular network that is shown by some cable TV
providers. A cable company decides to acquire the studio. Is there a reason
to think that this might reduce costs to consumers? Might this also increase
costs to consumers? Explain.
3) Mickey has created digital gloves that have the full functionality of the best
smartphones. Because it is so innovative people will need to be educated
by sales representatives about its features and how to use them before
consumers would be willing to purchase. Explain how this sales service
done by one firm may create positive externalities for other firms. How can
Mickey encourage the right amount of investment in this kind of sales
service?
4) Read Case Study 13.1 Standardization, Dominance, and the Personal
Computer in the Church and Ware textbook starting on page 462.
https://works.bepress.com/jeffrey_church/23/ How does IBMs strategy of
developing an open standard relate to two-sided markets and network
externalities?
5) A market is dominated by a single payment system that consumers use for
their purchases. After a new payment system enters that market, the
incumbent payment system lowers the fee that it charges to consumers to
below the marginal cost of serving consumers. The entrant accuses the
incumbent of predatory pricing. What explanation based on two-sided
market considerations could be given for lowering the price?
6) Suppose that a video game console manufacturer increases spending on
advertising to video game players. What do you predict could happen to
the price of the console charged to consumers and the licensing fees
charged to game developers? Explain.
7) Samsung has developed its own operating system for mobile devices.
Would Samsung be better off with an open operating system or a closed
one? Explain any ways it should or should not be open and why.
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