Value Creation and Capture in Platform Business Models: An Information-Theoretic Perspective

Abstract

Platform-based business models create economic value largely by lubricating longstanding frictions in markets. Our theoretical model considers three classic information-economics frictions – namely, coordination costs, search costs and transaction costs – and examines how synergies among the capabilities for solving these three problems can help platform businesses create competitive advantage over rival platforms or non-platform substitutes. As an extension, we consider how privacy concerns of users can reduce or even reverse these synergies.