Question

Explain why the cost structure associated with many kinds of information good and services might imply a market supplied by a small number of large firms. (At the same time, some Internet businesses such as grocery home deliveries have continually suffered steep losses regardless of scale. Explain why.) Could lower transaction cost in ecommerce ever make it easier for small suppliers to complete? As noted in Chapter 3, network externalities are often an important aspect of demand for information goods and services. (The benefits to customers on using software, participating in electronic markets, or using instant messaging increase with the number of other users.) How might network externalities affect firm operating strategies (pricing, output, and advertising) and firm size?