Consulting Case Interview Practice Questions

Answer: B, C, D, E - Fax machines, video formats, social networking websites and stock exchanges all have positive network effects. Each person who is on the network increases the value of the network. Luxury goods tend to have negative network effects. The more people have them, the less exclusive they are. This is called a snob effect.

Key Takeaway: Being adopted as a standard is key to creating network effects. However, in many cases, in order to become the de facto standard, companies must use aggressive penetration pricing or heavy marketing.