Term
| Google algorithms determine ad rank based on: |
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Definition
| quality, format, expected click- through rate, bid |
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Term
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Definition
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Term
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Definition
| apply Nash equilibrium concept to packets on IP network |
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Term
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Definition
| adding network capacity may not result in improved network performance. |
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Term
| Price of anarchy = (Value of Game at Nash Equilibrium/Optimal Value of the Game) , |
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Definition
| Price of anarchy indicates the social cost of the lack of intervention in a situation |
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Term
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Definition
| A network protocol that improves file sharing by simultaneously downloading and uploading files among users in a “swarm.” Free riding is a potential problem.Each node knows list of pieces downloaded by neighbors. Node requests pieces it does not own from neighbors. |
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Term
| BitTorrent employs the “tit-for-tat” strategy to encourage “cooperation” among agents. How? |
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Definition
| Every ten seconds, each peer selects four less cooperating peers it will choke , Will refuse to upload data to these peers for ten seconds, Long enough for TCP to reach full capacity with the new transfers |
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Term
| Why do consumers like technology standardization? |
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Definition
| Differentiated technology products may cause problems for consumers, and deliver lower value than standardized products. |
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Term
| Why do firms like standardization, even if they don’t have a monopoly on the standard? |
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Definition
Guarantees a larger market, Reduces risk for customers—willing to buy more in a
standardized world., Allows for economies of scale to be exploited, More marketing options, DOCSIS allows for plug and play, marketing by big box electronic retailers and the ability to plug into any cable system, Bottom Line: firms and consumers may get benefits from standardization. |
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Term
| Key issues in a standards race |
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Definition
a network effect -a hardware/software compatibility issue, and
-a positive feedback loop between the hardware and the software. |
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Term
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Definition
| The more people who adopt one technology platform make that technology more valuable. |
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Term
| hardware/software compatibility |
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Definition
| The widespread adoption of the hardware will drive the production of more software , Software is “ported” to a specific hardware system, compatibility is an issue |
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Term
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Definition
| More software makes the hardware more valuable to consumers. |
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Term
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Definition
| customers may experience costs of switching between standards , |
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Term
| Laissez faire standardization and efficiency |
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Definition
| Market forces will determine the standard. |
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Term
| QWERTY example. Microsoft? |
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Definition
| The advent of touch typing. Guaranteed the largest market for their skills |
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Term
| Microsoft–a happy accident? |
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Definition
| Mary Gates, Bill’s mother, was on a United Way board with John Opel, chairman of IBM , |
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Term
| Why did Microsoft become the PC OS standard? |
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Definition
A strong network effect existed:Learning economies—it is easier to learn one
system, Mobility—ability to sit anywhere and work, File compatibility and sharing, However, this network effect was also linked to a positive feedback loop from independent applications software vendor (ISVs).Consumers recognize the “winning” standard and will join the market for the first time or jump ship from competing standards |
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Term
| Microsoft–extending critical mass. Browser “wars”–why did MS feel threatened? |
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Definition
| A new competitor ‘born’ on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi- platform strategy where they move the key API into the client [browser] to commoditize the underlying operating system. |
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Term
| Microsoft actions toward Netscape and other firms. |
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Definition
Microsoft withheld APIs from Netscape until October 1995, Microsoft told PC manufacturers—if you take
Microsoft’s OS, the you take Internet Explorer, Bill Gates told Andy Grove, Intel’s CEO, that if Intel continued to develop free platform-level software, that Microsoft would not support Intel’s next generation of processors. |
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Term
| Game theory and standardization–Competitive Tactics for Case 1 |
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Definition
Build an early lead—perceived network size may lead to critical mass and market tipping in your favor-Penetration pricing, Cultivate supply of complements-Cultivate positive feedback loop, Product preannouncements-May freeze demand for rivals products (but may freeze demand for
your own product), Price commitments-Convince market that over time prices will fall, Lower cost producer may be able to make credible promises |
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Term
| Game theory and standardization–Competitive Tactics for Case 2 |
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Definition
| Entice other firms to accept your technology standard-Use low-cost licensing to make your technology attractive to others, Accept standards setting body as “enforcer,” develops a hybrid standard |
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Term
| Role of durable investments in complementary products (result in switching costs) |
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Definition
| Switching one component may involve the need switch all other components. |
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Term
| V endor lock-in vs. technology lock-in |
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Definition
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Term
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Definition
Lock-in exploitation may relate to
after-purchase supplies, and/or
Maintenance. |
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Term
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Definition
| Software-Businesses are locked into the Microsoft ecosystem, Wetware and retraining costs can be significant |
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Term
| Information and databases–Cloud lock-in issues |
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Definition
| Cloud services (SaaS, Paas, IaaS) The whole service stack (application, middleware and underlying hardware) is in the cloud–customers are more dependent on a single supplier. |
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Term
| Software as a Service (SaaS) |
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Definition
| the resources that are made available are software application programs, and the environment enables them to be configured and deployed. |
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Term
| Platform as a Service (PaaS) |
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Definition
| the resources are software application platforms, and the environment enables them to be configured and deployed, and enables applications to be created, configured, and deployed upon them. |
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Term
| Infrastructure as a Service (IaaS). |
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Definition
| the resources are virtual processors and data stores, and the environment enables them to be configured and deployed, and enables platforms and applications to be configured and deployed upon them. |
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Term
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Definition
| Web development, Advertising, Legal, Accounting firms |
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Term
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Definition
| Frequent flyer programs, Buyer punch cards, Random free stuff, Amazon. |
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Term
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Definition
| Term contracts, Volume discounts, “Requirements contract”—purchase from one supplier, Evergreen contracts that renew automatically: Wireless plan renewals – retention specialists |
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Term
| Intellectual property and lock-in (patents) |
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Definition
| Software design-Preexisting patent problem, |
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Term
| Understanding switching costs |
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Definition
With no switching cost:Highest price firm can charge user = cost of next
best customer alternative, With switching cost: Highest price firm can charge user = cost of next
best customer alternative + user switching cost, Highest price a firm can charge–next-best alternative + switching costs + search costs - costs of replacing customer |
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Term
| Value of customer base in terms of switching costs (competitive market vs. market with switching costs) |
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Definition
| Assume a “perfectly competitive” market: Many firms selling homogeneous product, Switching suppliers is costless, No lock-in, V.S. Highest price firm can charge user = cost of next best alternative + customer switching cost + customer search costs – cost of replacing customer |
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Term
| Lessons from Lock-in (Buyer |
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Definition
Anticipate lock-in potential, Potential for higher long-term costs. (Seller will capture “consumer surplus” over time), If possible, utilize multiple sources:However, may be tough in a standardized
environment., Retain detailed information regarding service usage, maintenance requirements, etc:Present detailed information during next negotiation |
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Term
| Lessons from Lock-in (Seller perspectives). |
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Definition
| Anticipate lock-in potential, Promotions and up-front discounts can help build an installed base, Target high-profile/influential customers, Employ loyalty programs:Encourages customers to raise their own switching costs |
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Term
| “Cost-plus” as a mistake (why?). |
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Definition
| Add together the direct material cost, direct labor cost, and overhead costs for a product, and add a markup percentage (to create a profit margin) |
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Term
| Reference prices and positive and negative differentiation values. |
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Definition
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Term
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Definition
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Term
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Definition
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Term
| generic pricing strategies. |
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Definition
| Evaluating economic value and relative price can be used to implement “generic” pricing strategies |
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Term
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Definition
| Target market willing to pay a premium |
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Term
| Issues with implementation? |
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Definition
| Competitive awareness is needed: easy entry may undermine strategy. |
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Term
| Penetration pricing–what is it? |
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Definition
| Price below economic value to attract and hold a large number of customers. |
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Term
| Issues with implementation? |
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Definition
| Customers should be responsive to price decreases. I.e., new buyers, or existing users willing to switch suppliers, Care must be taken not to undermine image or sales of other products. |
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Term
| Neutral pricing–what is it? |
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Definition
| Price is not used to influence market share:Advertising and marketing |
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Term
| Issues with implementation? |
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Definition
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Term
| Customer expectations with high-technology products (rapidly declining prices over time) |
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Definition
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Term
| Dynamic pricing strategies associated with information effects and network effects. |
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Definition
| Product value increases as consumers learn to use, Product value increases as number of users increases, Dynamic pricing response is required. |
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Term
| Price Discrimination and demand elasticity |
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Definition
| Charge different people different prices for the same product or service, Redistributes surplus from buyers to sellersRequirements: Market power (sustain P > MC), Market must be easily segregated by demand elasticity, No resale or arbitrage among buyers, Price discrimination will not work if consumers can resell the good. |
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Term
| The problem with charging one price (for a firm with market power). |
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Definition
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Term
| Simple demand-based markup rule. |
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Definition
Marginal Revenue (MR). Change in Total Revenues given a small change in sales, Marginal Cost (MC). Change in Total Costs given a small change
in output, ED = “Own” price elasticity of demand for the firm’s product, Fact #1: Profits are maximized when Marginal Revenue = Marginal Cost. |
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Term
| Requirements for price discrimination–Market power; market can be segmented by demand elasticity; no resale among buyers. |
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Definition
| Requirements: Market power (sustain P > MC), Market must be easily segregated by demand elasticity, No resale or arbitrage among buyers, Price discrimination will not work if consumers can resell the good. |
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Term
| 1st Degree Price Discrimination–What is needed for this to work? |
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Definition
| Perfect price discrimination: Each price is exactly equal to the consumer’s reservation price, All surplus goes to seller |
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Term
| Impact of information technology on 1st Degree Price Discrimination |
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Definition
| Transactions costs and information constraints may make this difficult to implement perfectly |
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Term
| 2nd Degree Price Discrimination–declining block pricing. Advantages? |
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Definition
| The practice of posting a discrete schedule of declining prices for larger quantities, Reduces information requirements associated with first- degree price discrimination, Consumers self- identify |
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Term
| 3rd Degree Price Discrimination–role of observable characteristics and/or self-selection. |
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Definition
| The practice of charging different groups of consumers different prices for the same product, Group must have observable characteristics for third-degree price discrimination to work, Examples include student discounts, senior citizen’s discounts, coupons, rebates, and promotion codes |
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Term
| Conditions for optimal 3rd Degree Price Discrimination |
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Definition
| Profits are maximized when: MR1 = MR2 = MC, ? |
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Term
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Definition
| Uniform pricing or price discrimination can leave consumer surplus on the table, Two-part pricing charges: A “fixed” entry fee which captures a chunk of consumer surplus, Unit price equal to marginal (or incremental) cost. |
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Term
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Definition
| Some resource costs are driven by peak period demand:Wireless and wireline telephone network, Data networks, Electric power Charge higher prices during peak periods, Charge lower prices during off-peak periods, Promotes efficient resource use, “Peak shifting.” Improves profits |
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Term
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Definition
| caps on data associated with Peak-Load |
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Term
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Definition
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Term
| Characteristics of information goods |
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Definition
| Information goods may have a relatively high fixed cost, Information goods may have relatively high “sunk costs.”(Sunk costs are non-recoverable if your information product flops), High fixed and/or sunk costs must be recovered over the number of goods sold, Costs of producing additional copies (marginal costs) are negligible ≅ 0 , |
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Term
| Suppose that two packets are traveling along the route “A, D, B”. Carefully explain why this cannot be a Nash equilibrium. |
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Definition
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Term
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Definition
| Its where the popular product with many compatible users becomes more and more valuable to each user as it attracts ever more users. |
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Term
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Definition
| its a death spiral in which the product loses value as it is abandoned by users, eventually stranding those diehards who hang on the longest, because of the unique preference for the product or their high switching cost. |
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Term
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Definition
| The value of a network goes up as the square of the number of users, meaning that it can be mathematically quanitifed. Formula: n*(n-1) = n^2-n |
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Term
| What is the significance of the QWERTY keyboard layout to collective switching costs? |
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Definition
| In the early days of typewriters, the QWERTY keyboard layout was designed to slow typists down so that the machines wouldn't get jammed. Later on, typewriter design had improved enough that this wasn't an issue, but because everyone already knew how to use QWERTY, more efficient layouts never gained wide acceptance due to both the costs of replacing existing typewriters and retraining typists. This problem still exists today in the computer world, even though the former obstacle is no longer an issue. Collectively, everyone would be better off switching to a more efficient layout, but no one wants to spend time and money on the switching costs related to doing so |
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Term
| The value of connecting to a network, either real or virtual, depends on what economic characteristic? |
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Definition
| The number of people already connected to it |
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Term
| What are the phases of a positive-feedback system? |
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Definition
| There are three phases: launch, takeoff, and saturation. They make up the 3 stages of the S-shaped curve of a positive-feedback system. |
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Term
| What was the name of the first successful spreadsheet introduced in 1979 that was available only on the Apple II? |
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Definition
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Term
| What happens when demand-side economies of scale and supply-side economies of scale combine in information technology industries? |
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Definition
| Growth on the demand side both reduces cost on the supply side and makes the product more attractive to other users and accelerates the growth in demand even more resulting in the possibility of industries being created or destroyed more rapidly. |
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Term
| If a market is likely to tip toward a single dominant technology or vendor what may be critical for the market to take off at all? |
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Definition
|
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Term
| What is a brand selection point? |
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Definition
| A point in the lock-in cycle when the customer chooses a new brand. |
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Term
| What does it mean when a user faces "lock-in"? |
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Definition
| When a user makes significant investments in complementary assets that are specific to that brand or machine switching costs can sometimes become substantial and lock you into your current system or brand. |
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Term
| How can a customer reduce or eliminate their switching costs? |
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Definition
| Customers can reduce or eliminate their switching costs by renting or leasing equipment when possible, rather than buying it. This allows the customer to reap the advantage of flexibility, while avoiding a lock-in situation. |
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Term
| What is Durable Purchases Lock-In? Give two examples of this type of Lock-in. |
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Definition
| It is a form of Lock-In involving the purchase of follow up products that work with the durable equipment, specific to that supplier, after the initial purchase of that expensive durable equipment. Eamples: Bell Atlantic and their telephone switches, and Computer Associates mainframe computers and operating system. |
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Term
| What is Brand Specific Training Lock-In? Give an example of this type of Lock-In |
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Definition
| It is a form of Lock-In involving the purchase of durable products where personnel are trained to use them. This is often brand-specific, in that considerable additional time and effort would be required to learn to work with a new brand of product with equal proficiency. Example: Software is an example of this type of Lock-In, it can be very time consuming to learn a new piece of software. |
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Term
| What is an example of dual sourcing strategy? |
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Definition
| IBM's selection of two suppliers for microprocessors: Intel and AMD. More recently, Apple has expanded sourcing for iPhone production. |
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Term
| What is a requirements contract? |
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Definition
| Commits the buyer to purchase all of its requirements exculsively from a specific seller for an extended period of time. |
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Term
| What is a Loyalty Program? |
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Definition
| Programs in which customers are rewarded for repeat purchases. |
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Term
| If “1st Degree” or “Perfect” price discrimination is successfully implemented, which of the following outcomes arises? |
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Definition
| b. The seller captures all of the consumers’ surplus. |
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Term
| Standards-setting bodies like IETF or IEEE play this game theoretic role |
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Definition
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Term
| Which of the following is not a reason that technology firms like standards, even if they do not control the standard? |
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Definition
| c. Reduces the pace of innovation |
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Term
| "Wetware" is best characterized as: |
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Definition
| a. Human-specific capital |
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Term
| The "lock-in" problem experienced by Bell Atlantic after it purchased AT&T switches: |
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Definition
| a. AT&T's software development charges. |
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Term
| A seller may increase lock-in for durable purchases by |
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Definition
| b. Staggering the vintages of equipment |
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