Question

Worldwide auction leader eBay started operations in Japan just five months after Yahoo! launched its Japanese auction service. But eBay was never able to mount a credible threat and ended up pulling out of the market. This example shows that: a) online auction markets are characterized by constant shifts in market dominance. b) firms should always subsidize initial adoption of their products and make them cheaper than their competitor's products. c) national markets tend to be influenced by factors that are not necessarily localized. d) market dominance in the global marketplace translates to an equivalent position in national markets. e) it's imperative to move first in markets influenced by network effects.

Answer 1

The correct option is:

e) it's imperative to move first in markets influenced by network effects.

This is because in network effect attracts more people as a result of increased popularity. However, the network effect works only after critical mass (amount of users required for significant network effects) is attained. Therefore, the company which is making the first move would be easily able to attract the critical mass. On the other hand, the company which enters the market later will not be able to attract even the critical mass as it is offering the same service. It is also possible that the first company is able to attract customers because of some market trends during a particular phase and the other company might not experience the same phase.