Which of the following statements about network economics is not true?

Question

BlackTom AI · Accepted Answer

Here is the evaluation of each statement regarding network economics, testing whether it is true or not.
Option 1: 'From a network economics perspective, the value of a community of people grows as the number of participants in the community increases.' This reflects the core idea of network effects: more participants generally increase the overall value of the network for everyone involved. The incremental value often rises with size due to more connections, information, and opportunities. So this statement is true.
Option 2: 'eBay is an example of a business model that is based on the principle of network economics.' eBay operates on network effects: more buyers and sellers create more liquidity and value for all users, which is a textbook example of network economics. This statement is true.
Option 3: 'In network economics, the marginal cost of adding new members to the network is higher than the marginal gain.' This claims that adding a new member costs more than the benefit they bring. In most network economics contexts, the marginal gain from adding a member (e.g., more connections, data, liquidity, network value) tends to be at least as large as, and often larger than, the marginal cost, especially in well-networked platforms. Therefore, this statement is not true.
Option 4: 'The law of diminishing returns does not always apply to every situation.' In networks, non-linearities, virality, and network effects can produce outcomes where diminishing returns do not hold in the short or long term, so this statement can be considered true in recognizing exceptions. This statement is true.
Option 5: 'Information technology can be strategically useful from a network economics perspective.' IT often enhances network effects (scarcity of platform features, connectivity, and data sharing), making this statement true as well.
Overall, the incorrect (not-true) statement is Option 3, which asserts that marginal cost exceeds marginal gain when adding members to the network. The other statements align with the fundamental ideas of network economics and its applications.

Which of the following statements about network economics is not true?

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