Explain why the cost structure associated with many kinds of information goods and services might imply a market supplied by a small number of large firms.
This is purely for the reason that the startup outlays of this type of sector are exceptionally inflated. Machinery, plants, and specialist workforce are expensive. Continuous growth of products is fast-paced, and resources should always be available to adapt to rapid market transformations. Besides, producing the information is relatively cheaper as the firm expands. Economies of scale are entirely comparative to information goods in the startup demands for the most qualified and experienced staff. Therefore, an organization might convincingly remain at the same level of experience amongst its workers from the start to success. Furthermore, in the market for information products, there is persistent demand for R&D and increasing the production line (Samuelson & Marks, 2014). Expanding the product line is relatively expensive running costs that need high-level skills employees. Specialists within this sphere charge inflated prices and can quickly switch jobs to maximize their income.
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At the same time, some internet businesses such as grocery home deliveries have continually suffered steep losses regardless of scale. Explain why.
Dunn (2017) comments that online grocery stores are failing shopping because of habits at grocery change at a lower rate than other categories. People have the habit of touching and looking at the freshness of fruits and vegetable before purchasing which is lacking online. Additionally, people have not fully embraced the idea of paying delivering charges every time as it is on most occasions, and the minimal shopping list can fail to be eligible for free delivery. The immediate demand of the good at times makes it more expedient to visit an adjacent grocery store. Another reason why online grocery stores become bankrupt is that they fail to understand their target consumers. Running an online grocery stores demands that the owners be prepared to walk an extra mile as regards providing pleasant user experience to clients.
Could lower transaction costs in e-commerce ever make it easier for small suppliers to compete?
While transaction overheads are in general lower in e-commerce owing to less running costs, it is problematic to claim that it enables small suppliers to compete. One of the main opportunities of e-commerce rests within the value chain. Small businesses have the chance to eliminate intermediaries or become middlemen. The concept behind the economies of scale still overbalances the impact of e-commerce. Since claims about the success of a website such as Alibaba may be made, it should also be taken into account the website’s sheer size and product availability. Therefore, suppliers of goods and services can benefit from the reduction of costs related to finding new customers (Shemi & Procter, 2018). E-commerce can also help small companies to improve their service and, in turn, retain customer loyalty. However, to argue that e-commerce can assist small businesses to compete against more prominent retailers is incorrect.
How might network externalities affect firm operating strategies (pricing, output, and advertising) and firm size?
A network externality entails the effect on a user product or service of others using the same product or service. Clients of a specific network product acquire better value with a bigger network of other connected consumers. This suggests that when more people consume a good, a company may justify charging a higher price for their product only for being the best. Looking at a corporation such as Verizon that generally provides the best customer experience through its services and coverage compared to its competitors also charges more for the similar services when weighed against AT&T. Many people prefer using Verizon as their mobile phone service provider, but since they charge more for one to access their services, some individuals are compelled to use a less expensive competitor owing to network externalities (Samuelson & Marks, 2014).
References
Samuelson, W.F., & Marks, S.G. (2014). Managerial Economics (8 th ed). Hoboken, New Jersey: John Wiley & Sons.
Shemi, A. P., & Procter, C. (2018). “E-commerce and entrepreneurship in SMEs: Case of myBot.” Journal of Small Business and Enterprise Development, https://doi.org/10.1108/JSBED- 03-2017-0088
Dunn, T. (2017, March 15). Fixing Online Grocery's 'Failure to Launch.' AdAge . Retrieved May 23, 2018, from http://adage.com/article/digitalnext/fixing-online-grocery-s-failure- launch/308239/
