CS299-001 Spring 2010

Chapter 10 Free

by soucy_bric on Apr.12, 2010, under Uncategorized

In Chapter 10: Anderson discussed the benefit of “increasing returns” where fixed costs are high, and because marginal costs are low -> the more you make, the more your profit margin:

                -“reward for max strategy:” spreads fixed costs over a larger quantity, but only works if you can keep competition at bay: 20th Century was full of ways to do it, like:



                                -copyrights and trademarks

                                -trade secrets

                                -strong arm tactics with retailers

Most don’t work as well as they used to because of:

1. piracy, as technologies of duplication become widespread

2. worldwide patents are hard, China

3. Distribution moves online: infinite shelf space, impossible to keep comps away from consumers

But then: The Internet: “Combined the democratized of production (computers), with democratized tools of distribution (networks)” and created “A truly competitive market”

--> Therefore: Anderson claims the Bertrand model became the law of pricing online

Question: Despite this sounding very persuasive when listening to Anderson’s cogent writing style, the conclusion that the internet has become a truly competitive market is not wholly true as there are clear near-monopoly players on the internet as the very nature of internet companies is to become “everything to everyone” (Think of the juggernaut that Google has become).  How have these companies succeeded in “keeping competition at bay”?  Are they using ways Anderson describe as being used in the 20th Century (like Anderson discussed that MSFT did)?  Or are there new rules to competing online?  Does this make Anderson’s discussion moot?

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1 comment for this entry:
  1. douellette715

    I definitely agree with the idea that there are monopolies forming on the web. Companies, like Google and Facebook, have kept competitors at bay due to constant innovation. It’s impossible for a new or little known Web 2.0 site to compete with these mega sites because they are “everything to everyone.” These brands are strong and their users are very loyal. Also, these sites have so much money that is very easy for them to buy out possible competitors. The only hope start ups have is coming up with an innovative idea and doing it better than the giants. Take for example, 4Square. This tracking app has become huge due to network effects. People like sharing information with their friends and competing to become “mayors” of locations. The giant sites haven’t been able to produce something like this effectively and may be losing traffic.

    While I agree that it’s extremely hard to enter the market,one needs an innovative and exciting idea to be able to break through. This could be said about traditional sales as well. Take beer for instance. Budweiser is huge but a good microbrew could easily steal market share. I believe that online competition is not that different from the real world. It’s not new, it’s just different.

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