Apple, Which Controls Over 75 Percent of Digital Music Sales

question 21

Multiple Choice

Apple, which controls over 75 percent of digital music sales, was able to dictate song pricing for years, despite the tremendous protests of the record labels. This implies that:

• A) despite the presence of network effects, the music industry is not dominated by any single leader.
• B) the presence of multiple new entrants forces leading firms to drop prices of their offerings.
• C) firms with strong network effects enjoy substantial bargaining power over partners.
• D) a dominant market share does not necessarily translate to greater profitability for a firm.
• E) firms with significant market share can leverage network effects to overtake prior market leaders.

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Definitions:

Exercise Price

The rate at which an individual possessing an option can execute a purchase (in call option scenarios) or a sale (in put option scenarios) of the underlying asset.

Stock Price

The cost of purchasing a share of a company, which fluctuates based on market demand, company performance, and economic conditions.

Put Option

An option contract in finance that grants the buyer the privilege to sell a specific amount of an underlying asset at an agreed price, within a designated period, without the necessity to proceed.

Strike Price

The predetermined price at which the buyer of a call option can purchase, or the buyer of a put option can sell, the underlying security or commodity.