Question

1. Compare the major differences between the decrease returns world and the increasing returns world.

2. Explain why the rule of increasing returns applies to e-commerce companies.

3. From the 2nd paper, titled ‘Network Effects aren’t enough’, please discuss why ‘Growing too fast too early’ is one of major reasons that network effects are not effective.

Answer 1

1. Increasing returns world is a space or the part of world where the inputs are being rewarded by a higher rate of output . The cost of each additional unit decreases the average cost . Further a decreasing returns world is usually facing a stagnation in growth , where additional inputs are not capable of providing as equivalent outputs , but rather the average cost is increased.

2. Increasing returns applies to the e-commerce company because internet and world wide web is providing a ever growing connectivity. It is the new digital age and the future only holds expansion. The world is reduced to phones or laptops. An e-commerce company has the largest consumer base because of obvious advantages . Hence inputs are being rewarded with extra ordinary returns or increasing returns.

3. Growing too fast too soon causes a decrease in network effect because a sudden increase in the market doesnot guarantee longevity in standing of the company. Trust needs to be built and a constant consumer base provides long run returns. A short run boom might be a result of bandwagon effect. A connection is not formed ,.of the company with it's consumer. Hence the fall is generally very fast.