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ASSIGNMENT QUESTIONS

Q1. Network Effects.

1.   Provide your best example of how pricing has been used to increase or help network effects.

2.   Provide your best example of how pricing has decreased or harmed network effects.

Q2. Consider a platform like Airbnb. Travellers’ native demand, without network effects for rooms is given by qt (pt )  =  24,000, 000 − 48, 000, 000pt , while property owners' native demand to list rooms is qo (po )  =  1,200, 000 − 24, 000po . For every 2400 travellers who join the platform, another 37 owners are willing to join. Furthermore, for every 2 owners willing to  join the platform, another 1 guest is willing to join.

1. Independent Pricing. Without considering network effects, what are the profit maximizing prices and quantities?

2. Two-Sided Pricing Model. With network effects, what are the profit maximizing prices and quantities?