978-1259539060 Chapter 4 Solutions Manual

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Instructor’s Manual

ANSWERS TO OPENING CASE DISCUSSION QUESTIONS

1. What are some of the advantages and disadvantages of mobile

payment systems in a) developed countries and b) developing

countries?

In developed countries, people have become increasingly comfortable with

mobile solutions, and increasingly expect transactions to be quick, convenient,

and modern. A very large proportion of the population of developed countries is

connected to the internet at all times, making mobile banking extremely easy to

2. What are the key factors that differentiate the different mobile

payment systems? Which factors do consumers care most about?

Which factors do merchants care most about?

To discuss this question, it is useful to !rst get students to rank the

features they care most about (e.g., security, convenience, accepted

everywhere, low or no fees, etc.) and then create a table that has

columns for the most important features for consumers (“Security”,

3. Are there forces that are likely to encourage one of the mobile

payment systems to emerge as dominant? If so, what do you think will

determine which becomes dominant?

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Students will point out that there are strong network externalities in

this technology (the more merchants that use a system the more

valuable it is to consumers, and the more consumers that use a

system, the more valuable it is to merchants), which should create

pressure for adopting one or a few dominant designs. However, there

are also some forces that are likely to prevent coalescence around a

4. Is there anything the mobile payment systems could do to increase

the likelihood of them becoming dominant?

5. How do these different mobile systems increase or decrease the

power of a) banks, b) credit cards?

This has the potential to be a very interesting question. Most of the

existing mobile banking systems rely on banks and/or credit card

systems to provide the actual transactions or hold capital reserves.

However, mobile banking systems provide an alternative way for

individuals and merchants to exchange money, thus providing a

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ANSWERS TO DISCUSSION QUESTIONS

1. What are some of the sources of increasing returns to adoption?

A self-reinforcing cycle begins when increases in the adoption of a technology:

a. leads to greater knowledge accumulation, that supports the making of improvements

in the technology’s performance,

2 WHAT ARE SOME EXAMPLES OF INDUSTRIES NOT

MENTIONED IN THE CHAPTER THAT DEMONSTRATE

INCREASING RETURNS TO ADOPTION?

Additional industries demonstrating increasing returns to adoption are typewriters with the

Qwerty keyboard and the adoption of VHS over Beta. The standard keyboard on a typewriter

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2. What are some of the ways a firm can try to increase the overall value of its technology,

and its likelihood of becoming the dominant design?

Firms can increase the likelihood that their technology will become the dominant design by:

a. increasing the technologies’ standalone value to the customer (e.g. superior

b. increasing the technologies’ network externalities value by

a. encouraging developers of complementary assets to create products for their

b. advertising heavily to create a perception that the installed base is larger than it is

c. leveraging an incumbent technology’s complementary assets and installed base by

making their technology compatible with the incumbent technology.

3. What determines whether an industry is likely to have one or a few dominant designs?

Whether an industry will have one dominant design or a few is a function of the following:

i. The level of market share at which consumers get their network externality needs

ii. Path dependency can affect the trajectory of technology development that in turn

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iv. Sponsorship of a technology by a powerful firm can help the technology attain a

4. Are dominant designs good for consumers? Competitors? Complementors? Suppliers?

With regard to consumers this question can be rephrased as: Are winner-take-all markets good

for consumers? The answer is yes if the benefits accrued by consumers through widespread

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