Hi guys,
Please help me with question from CFA website. Many thanks.
Question:
Which of the following businesses is least likely to have network effects?
- A stock exchange
- A telephone company
- A classified advertising website
- A price comparison website for travel airfares
- A resume preparation service for online job seekers
Solution
E is correct. The resume preparation service benefits from the network effects on various online job sites, but the service is not the source of those network effects. Each of the other businesses (A, B, C, and D) becomes more valuable to its customers as it attracts users. A stock exchange is valuable and worth joining because many securities trade on it. The telephone network is very useful because most people are on it. A classified advertising website becomes more useful as it attracts more listings. An airfare price comparison website is valuable to airlines because it has many shoppers and valuable to shoppers because it features prices for multiple airlines and routes.