Suppose there are two competing types of word processing programs, Greenbeam and Mosdef, neither of which is compatible with the other. That is, people using the Greenbeam word processing program cannot open documents created by the Mosdef program and vice versa. Word processing programs are subject to network externalities: the more people who use a given program, the greater the value of that program to each user.

Greenbeam and Mosdef entered the market around the same time. Which of the following is likely to happen if Mosdef sells its program at the profit-maximizing price, but Greenbeam sells its program at a much lower price than Mosdef in the early stages?

a) Mosdef will dominate the market for word processing programs.

b) Greenbeam and Mosdef will have equal shares of the market.

c) Greenbeam will dominate the word processing software market

d) Neither Greenbeam nor Mosdef will be successful, and a new company could easily enter and dominate the market.

Answer rating: 100% (QA)

The likely outcome in this scenario would be c Greenbeam will dominate the wor... View the full answer