Why Might a Profit-Maximizing Firm Producing a New Product with Network

question 16

Multiple Choice

Why might a profit-maximizing firm producing a new product with network externalities want to give its product away for free?

• A)To lock customers in then raise prices at a later date.
• B)Although this practice loses money, it can get the firm valuable publicity.
• C)By building market share, the product becomes much more valuable and the firm can make money by offering a premium version of the product for sale.
• D)The product becomes a more valuable place to advertise if it doesn't cost anything.
• E)A profit-maximizing firm would never give its product away for free.

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Definitions:

Potential Dissonance

The possible tension or conflict that arises when a person holds two contradictory beliefs or attitudes simultaneously.

Low-ball Technique

A persuasion strategy where an initially favorable offer is made to get an agreement, and then terms are made less favorable to the agreement party.

Postdecisional Dissonance

The discomfort experienced after making a difficult choice, often involving feelings of regret or uncertainty.

Cognitive Dissonance

The psychological discomfort experienced when holding two or more conflicting cognitions, such as beliefs, attitudes, or behaviors.