Question

Chapter 1 1. What is a network effect and why is it valuable? 2. What is information asymmetry? Describe how has it changed or stayed the same with the advent of e-commerce.

Answer 1

1) As the name suggests network effect is the phenomenon wherein the value of a good or a service increases/improves with the increase in the number of people/participants using it. It is more of a positive effect. The best example of network effect can be social media.Growth of  Youtube, Facebook, Twitter, Instagram can be directly correlated to network effect. As more people gained access to these social media netwoks, there have been more content creation and information sharing which has been of great use to the public. It has also in a way helped many e-commerce sites to foster their growth.

2)Information Asymmetry is basically the situation wherein one party has more information than the other in a transaction or a business. It can have both positive and negative impact.The advent of E-commerce has reduced the information asymmetry between the buyer and the seller. The buyer has more access to trade related information such as sellers details, their offers, price comparison,order tracking and various other details which have eventually helped to reduce the information asymmetry between them.