Question

Explain how network effects are largely responsible for the large market shares enjoyed by Microsoft in desktop operating systems and by Google in mobile phone software. In addition, give an example of a good that has achieved commercial success because of a bandwagon effect. How about one that has been successful because of a snob effect?

Answer 1

Microsoft and Google enjoy benefit of network effects. As more and more people use their operating systems (windows and andoidd respectively), there are more and more firms and individuals working on producing softwares for these operating systems. Availability of large supply of diverse softwares compatible with these operating systems makes these operating systems more appealing to masses. For example, people buy andoid operating system based phones as andoid app store has a large number of apps. This has been possible due to efforts of a large nuber of developers, which in return has been possible due to large number of users of andoid based mobile phones.

A good that has achieved commercial success due to bandwagon effect is mobile phone. A single person would not desire to have mobile phone if his/her friends and relatives do not use phones. Thus, as more number of users started using mobile phone, the attractiveness of mobile phone increased. This has led to commercial success of mobile phone.

A good that has been successful due to snob effect is paintings by well known painters. THe exclusivity associated with such paintings makes them desirable. THis is snob effect, where a good is desired more as the number of users of that good are fewer.