Markets Where Strong Network Effects Are Present Often Exhibit a Winner-Take-All

question 14

Essay

Markets where strong network effects are present often exhibit a winner-take-all or winner-take-most dynamic. What network effects-related advantages can a dominant incumbent enjoy that help it repell rivals, and why is it so difficult for a newcommer to displace the dominant player in these markets?

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Definitions:

Drive Reduction

A theory suggesting that motivation arises from the desire to reduce physical needs, such as hunger or thirst, thereby maintaining homeostasis.

Physiological Need

A physiological need is a basic bodily requirement that humans must satisfy to maintain health and survival, such as the need for food, water, and sleep.

Homeostasis

The ability of an organism to maintain internal stability and balance of physiological processes regardless of external changes.

Drive

A natural, genetically programmed impulse to achieve a target or fulfill a desire.