When network externalities are present in a market,the typical outcome is:
A)A winner-take-all market
B)Monopolistic abuse requiring antitrust intervention
C)More rapid technological innovation
D)Lack of consumer choice

Question

Quizplus · Accepted Answer

When network externalities are present in a market, a winner-take-all market is the typical outcome. This means that the product or service with the largest network of users or participants tends to attract more users and participants, resulting in a positive feedback loop that can lead to dominance. This happens because the value of a product or service for an individual user depends not only on its intrinsic qualities but also on the number of other users who use it. As a result, people tend to select the product or service that is already popular, creating a self-reinforcing effect that favours the market leader. This phenomenon is sometimes referred to as the 'tipping point' or the 'bandwagon effect.' As a consequence, firms that achieve market dominance in such a market often enjoy substantial profits and pricing power, while their competitors struggle to survive.

When Network Externalities Are Present in a Market,the Typical Outcome