Question

Choose an example of an industry or a company with demand side increasing returns and describe it in maximum five bullet points.

Answer 1

First we need to understand that what does it mean by demand side increasing returns. then we will take the example and understadn it in detail

Point -1 Demand side increasing returns means more people using the product/service brings more benefits to its user and make it more useful. Simple exmaple is telephone. If only one person is using then it is of no use. if maximum people uses it then it brings the highest usefulness as it can be used to call anyone of your knowing

Point -2 We can take the example Microsoft in 1990s. During this time most of the people wants to use operating system as microsoft because most of the other softwares was only supported by the microsoft. In the same way most of the software devloper company wanted to make their software compitable with microsoft operating system as it is used by the most of the customers

Point 3 - Here in such scenario the switching for the customers from one product to another product is very difficult as well as its a costly affair. Imagine the number of softwares needs to be purchased again if customers switches to IOS from Microsoft .

Point 4 - In this scenario company doesn't try for the highest market share but they try to capture the complete market itself. Which brings more benefits to the customer and it involves economy of scales as well

Point 5- Microsoft office product which is more competable with microsoft as a operating system and much cheaper for microsoft os but costly for others. So company try to provide such features in such a way that it stops entry of the rival and binds the customers to its product

So in this way we can understand the concept of demand side increasing rates