Today in discussion sections you'll be talking about Steve Jobs's essay in the context of Chapter 10. Here are some questions you may want to think about:
(1) When is it efficient for there to be incompatibility between music players and music?
(2) When do companies have an incentive to make their products compatible with one another? When do they have an incentive to make their products incompatible with one another? If the music companies didn't require it to use DRM, would Apple really make music downloaded from iTunes DRM-free? Why or why not?
(3) Music companies talk about DRM in much the same way as pharma companies talk about patents: without distribution rights, they will have no incentive to invest in producing music. Is that true? What are the similarities and differences between the music and pharma industries?
(4) We looked at the components approach in lecture (10.3). That seemed to indicate that companies do better when their components are compatible with one another. However, the model was very stylized. Which of the results in that model are generalizable? Which are specific to the formulation of the model? Can we really apply the model to music and mp3 players, or not? Why?
(5) Compare the three different approaches described in chapter 10 (the network externalities approach, the supporting services approach, and the components approach). Is one "better" or "more realistic" than the others? How would you go about deciding which approach to use in analyzing different goods?
(6) What role does price play in the market for goods with network externalities? A lot of these goods are given away for free - for example, you can set up a blog or a myspace page for free. Yet we almost always say that setting price to zero isn't profit maximizing. What's up? Will these always be free? Why or why not?
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