Chapter 10: Problem 4

Which of the following products are most likely to have significant network externalities? Briefly explain. a. Smartphones b. Dog food c. Board games d. LCD televisions e. 3D televisions

Short Answer

Expert verified

Among the listed products, 'Smartphones' are most likely to have significant network externalities due to the high level of user interaction and data sharing. 'Board Games' and '3D televisions' can have some degree of network externalities, but these are not as strong as for smartphones. 'Dog Food' and 'LCD Televisions' are unlikely to have network externalities as their value does not increase with the number of users.

Step by step solution

Analyzing the first product

First, consider the product 'Smartphones'. Smartphones are technology-based products that rely heavily on user interaction and data sharing. The more people using smartphones, the more valuable these devices become due to the increase in available apps, sharing of information, and ease of communication. Hence, smartphones have significant network externalities.

Analyzing the second product

Next, reflect on 'Dog Food'. Dog food does not offer increased value with more users. The value of dog food to a user does not depend on how many other users are also purchasing or using dog food. Therefore, it does not have network externalities.

Analyzing the third product

Consider 'Board Games'. Board games might have some degree of network effect. The reason is that the more people play the game, the more potential players you might have to play with. The game's popularity might make it more interesting due to improved rules, additional players, or increased competition. However, this network effect is significantly less than that of smartphones.

Analyzing the fourth product

Consider 'LCD televisions'. Similar to dog food, the use and value of LCD televisions do not depend on the number of people using them. Hence, LCD Televisions do not have network externalities.

Analyzing the fifth product

Lastly, consider '3D televisions'. The value of 3D televisions is slightly tied to network externalities. This is because the more users there are, the more demand there would be for 3D content. However, this network effect is not as strong as smartphones.