Demand-side economies of scale PDF

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Demand-side economies of scale...

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Demand-side economies of scale: Economies of scale in production: Larger firms tend to have lower unit cost. -Demand-side economies of scale do not dissipate when the market gets large enough The arrow of the upper-right portion is the virtuous cycle and the arrow of the lower-left portion is the vicious cycle. 

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Virtuous cycle: A popular product with many compatible users becomes more and more valuable to each user as it attracts even more users. Vicious cycle: A death spiral in which the product loses value and it is abandoned by users, eventually standing those diehards who hang the longest, because either the product is really unique or high switching cost.

If consumers expect your product to become popular, a bandwagon effect will occur, but if consumers expect your product will flop the same bandwagon effect will occur thus proving the consumer’s expectations in both cases.

Positive feedback based on demand-side economies of scale in far more important now, than before. The more people using the network, the more valuable it is to each one of them. The more develop the network tends to grow at the expense of smaller networks, especially if the smaller network is not able to exchange traffic with the larger network. This practice is known as interlining generally in the railroad and airline industry. The combination of both demand and supply-side economies of scale creates a “double whammy”. In which growth on the demand-side both reduces cost on the supply-side, and makes the product more attractive to other users--accelerating the growth and the demand even more....