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CMA Intermediate · Operations Management and Strategic Management · Digital Strategy

A digital platform's value to each user rises as more users join, because every new participant can interact with a larger pool. Which concept describes this source of value creation?

Network effects describe this. Each additional user makes the platform more valuable to every existing user because there are more people to interact with. This differs from learning curve effects, economies of scope or diminishing returns, which concern production costs and input productivity rather than user-driven value.

  1. ANetwork effectsCorrect
  2. BEconomies of scope in production
  3. CDiminishing marginal returns
  4. DLearning curve effect

Explanation

Network effects arise when the benefit to each user increases with the number of other users. Economies of scope relate to sharing resources across products, diminishing returns relate to input additions, and the learning curve relates to falling unit cost with cumulative output experience.

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