Chapter Thirteen:
Information Industries and Nonmarket Issues
True/False Questions:
1) Information industries have been a major source of growth in the past two
decades.
2) The Internet is a network and has the same economies as traditional products and
services.
3) Substantial commercial activity has migrated to the Internet.
4) The goal of Microsoft is to garner about 30-35% of the market share of the
businesses it is in.
5) The property stating “the value of the product to each user increases the more
people that use it” is called ‘network externalities.’
6) Complementary products require compatibility.
7) A standard can be either open or mandatory.
8) The greater the use of a system, the greater is the incentive for software
developers to write to an establish system, such as Windows.
9) The issue of tipping happened in the VHS-Betamax rivalry.
10) The possibility of tipping leads to a weak first-mover advantage..
11) Technologies other than the Internet do not raise privacy issues, such s the Global
Positioning System.
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12) Web sites collect anonymous data by tracking browsing using donuts deposited
on personal computers.
13) One of the basic principles of the Internet is the right to know.
14) A principle of the Internet is to be free from arbitrary treatment..
15) A number of bills were signed into law regulating privacy issues on the Internet in
the 2000 Congressional session.
16) There is a good deal of legislation protecting all sorts of privacy rights, such as
the Video Protection Act of 1988, but none on the issue of Internet privacy rights.
17) Self-regulation by companies has been relied on rather than statutory laws to
manage privacy issues.
18) eBay does not have a strong privacy component in its dealings with users.
19) Confidence in the Internet is a public good, but the provision of that public good
is subject to a free-rider problem.
20) The European Union and the U.S. have the same policies towards personally
identifiable information (PII) that is op-out.
21) Some Internet companies infringe on the privacy of users who anticipated that the
information they provided would remain private..
22) TRUSTe is a company that leads in Internet privacy standards..
23) In 1998, Congress passed the Internet Tax Freedom Act, which imposed a 3-year
tax moratorium prohibiting states from enacting any new tax on Internet access
and any tax that singled out the Internet.
24) The moratorium passed by Congress on Internet taxation banned any type of tax
collection.
25) Internet sales are of great concern to states that will lose the sale taxes from sales
over the Internet.
26) Some public policy analysts argue that the Internet is only a private good and that
it should be heavily taxed.
27) The business model of some Internet companies focuses on developing a
community of users who interact with each other as well as with the company.
28) Facebook is an example of an Internet community.
29) eBay’s set of norms was a way to accomplish order for its community so that
buyers and sellers could trust each other and realize the gains from trade.
30) One problem with a feedback mechanism is that a reputation can be exploited.
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Multiple Choice Questions:
31) In the past ______ decades, the information industry has grown significantly.
a) Two
b) Three
c) Four
d) Five
32) Because the Internet is a network with economies that are quite different from
those of markets for physical goods, network externalities and complementary
goods that make _______and _______important characterize a number of lines of
business.
a) Contracts; trust
b) Compatibility; standardization
c) Compatibility; trust
d) Standardization; contracts
33) The _____ _____ of information raises the issue of appropriability of rents from
the investment of developing information.
a) Private rights
b) Public goods
c) Public rights
d) Private property
34) What is deposited on a user’s personal computer to track browsing?
a) A donut
b) A spy
c) A cookie
d) A cake
35) What is described in the following: “The property that the value of the product to
each user increases the more people that use it?”
a) Positive externality
b) Entropy
c) Stasis
d) Network externalities
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36) Network externalities yield _________returns on the demand side of the market.
a) Decreasing
b) Increasing
c) Immeasurably decreasing
d) Vastly increasing
37) A standard can either be ____ or _____.
a) Open; closed
b) Open; proprietary
c) Closed; proprietary
38) What type of market indicates that a single winner takes most of the market?
a) Closed
b) Open
c) Competitive
d) Tipped
39) An example of the tipped market was the rivalry between ____ and ______.
a) Betamax and VHS
b) IBM and Sun
c) eBay and amazon
d) GE and Whirlpool
40) In the U.S., privacy and the Internet has been largely managed by ______.
a) Government regulation
b) Courts
c) Lawsuits
d) Self-regulation by companies
41) What is the leading online advertising services firm?
a) DoubleClick
b) Ads-are-Us
c) MonsterBoard
d) WebDesign
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42) What is the stance of most business concerning legislating privacy rules for the
Internet?
a) Support strongly
b) Opposed generally
c) Neutral
d) Lobbying for legislative passage
43) What are some of the components of self-regulation?
a) Policies and practices of companies
b) Certification by independent nongovernmental organizations
c) Personal protection by individuals
d) All are components
44) What describes the European Union’s approach to Internet privacy?
a) Enacted a directive (law) that strongly protected privacy for personally
identifiable information
b) Decided to follow the lead of the US and not pass legislation
c) Is considering strong legislation
d) Believes that privacy is an individual matter
45) Confidence in the Internet is a public good, but the provision of that public good
is subject to a _________ problem.
a) network externality
b) standardization
c) free-rider
d) customization
46) Why do online retailers fight tax collection for their items?
a) It is too much of a bother
b) They do not want to do the state’s work
c) It would be prohibitively expensive they contend
d) It would be too complex
47) According to eBay, what is the key to its success?
a) Hard work
b) Privacy
c) Trust
d) Money
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48) eBay’s ______ lives in the shadow of public order.
a) Public ordering
b) Private ordering
c) Flexible ordering
d) Traditional ordering
49) eBay wanted what type of communication and put out guidelines to that effect?
a) Open and honest
b) Closed and honest
c) Flexible and honest
d) One way and honest
50) Who has pressed for sales tax being collected on the Internet by those retailers on
the Internet?
a) States and bricks-and-mortar retailers
b) Federal, state and local governments
c) Locals and wholesale companies
d) States and local governments only
Essays and Review Questions:
1) Write an essay describing the evolving information industry and some of the
nonmarket issues that arise.
2) What are the economics of the ‘Winner-Take-Most Markets?’ Use Microsoft as
the case to discuss. Use specific concepts and events in your critical analysis.
3) What are the basic issues in Internet privacy? How does the U.S. differ from the
EU in its treatment of the issue? Choose which approach you agree with and
explain your position.
4) Discuss the elements in self-regulation and the Internet. Use the eBay policy and
core values in explaining self-regulation.
5) Describe, discuss and analyze the Internet and tax policy. What is your stance and
how would you convince Congress that you are right?
6) What is an online community? How are they developed and why? Who is a part
of such a community and why? Use eBay as an example.
7) What are the major issues in the case of DoubleClick and Internet Privacy?
Describe the “who, what, where, when, and why of the case. What role did
government play? What was the strategy by DoubleClick to restore consumer and
public confidence? What are the individual privacy rights issues?
8) Discuss the management of eBay in-depth. How might it serve as a model for
other online companies?
9) What do you think the future of the Internet will be and why do you take that
position?