21. The standard typewriter keyboard (the QWERTY arrangement of keys) was developed in the 19th century to prevent typists from typing too fast. When typists typed too fast, the keys would jam. With modern electronic typing, this problem has been eliminated. Why doesn't the world switch to a more efficient keyboard? (Hint: Look at the costs and benefits for a single individual making the switch. Recall that a typist may not always type on the same machine. Is there a free-rider type of problem here?)
22. The success of eBay led to the establishment of many auction sites on the web, Most of them copied the structure and policies of eBay, yet none of the imitators was nearly as successful as eBay and most have disappeared. Yahoo, for example, is one of the biggest of the Web companies, and it initially tried to compete in auctions by not charging commissions. Yet its auction site was always small compared to eBay's, and in 2007 Yahoo decided to abandon the auction business.
If you were a seller, would it not have been better to list at Yahoo, which did not charge anything for listing or selling, than to list at eBay, which charged a $.25 listing fee and a commission of up to 5% on sales? The services that Yahoo offered both buyers and sellers were almost identical to those on eBay, yet the Yahoo auctions were empty compared to those on eBay.
See if you can find any auction site that is provides the same services as eBay, which allows anyone to sell and anyone to buy. If you can find one, look at the number of auctions in each and the number of bids that items get. Come up with a hypothesis about why eBay so dominates this business. (Hint: The last section argued that in some industries, bigness begets bigness. Once you get big, you stay big. Why would this happen in an auction site?)
23. Which of the following products seem to have network externalities?
Paypal
Microsoft Word
Ebay
Google Search
Yahoo mail
Photobucket
Geocitie
the iPod
Can you think of some products that do have network externalities? Some that may seem to have but do not?
24, Network externalities are connected to a number of other topics in economics. Can you explain how they are related to positive or amplifying feedback, barriers to entry, natural monopoly, and positive or negative externalities? A couple of terms that are not discussed in this text but which are related to network externalities are "path dependence" and "lock-in effect." Search for them on the internet and explain how they are related to network externalities.
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