The mantra of Amazon.com CEO Jeff Bezos is “Get big fast.” As we saw in Chapter 13 on monopoly, one reason to “get big fast” is because in some industries the firm’s average cost will plummet as the firm expands—so size helps on the supply side. In this chapter, network effects illustrated how size helps on the demand side. With this in mind, explain the following realworld drives to get big fast: Do you think it’s mostly about increasing returns or mostly about network effects? Explain why:
a. Second Life, an online virtual world, lets people use many of its features for free. To use the best features, you have to pay.
b. Likewise, Match.com, the online dating site, lets people post profiles, look at other people’s profiles, and even get mail from other members for free. To send an e-mail to a member, you have to pay.
c. Adobe Acrobat Reader is free, but the software to create sophisticated Adobe documents is not.
d. King Gillette (real name) gave away his first disposable razor blades in 1885. They came free with the purchase of a box of Cuban cigars.
e. Amazon.com itself.
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