Indirect Network Effects Research Articles

Low frequency ultrasound elicits broad cortical responses inhibited by ketamine in mice

The neuromodulatory effects of >250 kHz ultrasound have been well-demonstrated, but the impact of lower-frequency ultrasound, which can transmit better through air and the skull, on the brain is unclear. This study investigates the biological impact of 40 kHz pulsed ultrasound on the brain using calcium imaging and electrophysiology in mice. Our findings reveal burst duration-dependent neural responses in somatosensory and auditory cortices, resembling responses to 12 kHz audible tone, in vivo. In vitro brain slice experiments show no neural responses to 300 kPa 40 kHz ultrasound, implying indirect network effects. Ketamine fully blocks neural responses to ultrasound in both cortices but only partially affects 12 kHz audible tone responses in the somatosensory cortex and has no impact on auditory cortex 12 kHz responses. This suggests that low-frequency ultrasound’s cortical effects rely heavily on NMDA receptors and may involve mechanisms beyond indirect auditory cortex activation. This research uncovers potential low-frequency ultrasound effects and mechanisms in the brain, offering a path for future neuromodulation.

Early entrant's strategy for cooperating with a competing fourth-party platform

By integrating several third-party platforms that enter the market late (later entrants), a fourth-party platform can effectively compete with the third-party platform that enters the market early (early entrant). Our research develops an analytical framework to address the platform coopetition problem that the early entrant faces, i.e., integrating its service into the fourth-party platform or not, when there is a fourth-party platform in the market. This study provides optimal conditions and platform decisions for platform coopetition and then explores the impact of the implementation of the coopetition strategy on platform prices and consumer demands. Our analytical results show that the coopetition strategy is effective only when the sum of the strengths of direct and indirect network effects is low and the quality difference between the early and later entrants is higher than a certain threshold. Moreover, the early entrant always partially integrates its service into the fourth-party platform when the coopetition strategy is adopted. Such adoption always lowers the prices of the early and later entrants. The implementation of the coopetition strategy always increases the total consumer demand of the early entrant, but it also results in a reduction in the number of consumers in the standalone application of the early entrant.

Two-sided dynamic pricing and value-added service investment strategies of competitive platforms considering indirect network effects

In recent years, many platforms have realized that relying on subsidies and low-price strategies may result in limited access to users. To expand the market scale and realize the second growth in user scale, some platforms have started adding value-added service (VAS) investment. In this study, we focus on two competing platforms whose bilateral users can be multi-homed. Considering that the users' scale and indirect network effects (INEs) at the initial stage affect their willingness to access and the platforms’ VAS investment in the next stage, we build a two-stage game model to study the two-sided dynamic pricing decisions of competitive platforms when VAS is offered. The results indicate that the platforms should formulate different pricing strategies at two stages. In the first stage, the platforms can adopt a strategy of subsidizing or charging. Particularly, under certain conditions, it will be more beneficial for the platforms to subsidize the side users with the weaker strength of INE. Differently, in the second stage, the platforms should always charge bilateral users. Moreover, at this stage, the platforms will implement differentiated VAS and pricing combination strategies for both sides; they can offer a lower VAS level to one side of users but charge them a higher access fee, while offering a higher VAS level to the other side of users but charge them a lower access fee.

Dynamic competition and market structure for platform‐based products: roles of product quality and indirect network effect

AbstractWe consider dynamic competition between two platform‐based products that exhibit two‐sided network effects, such as game consoles and intelligent hardware. Firms compete in terms of pricing and Research & Development investment, which are driven by consumers’ marginal utility of quality, indirect network effects, and the differentiation between consumers’ preference for the products. We find that with a small marginal utility of consumers, the equilibrium investment of one firm increases first and decreases later with its product quality but is not obviously sensitive to the rival's. In contrast, with a large marginal utility, if the quality of the two products is comparable, the equilibrium investment increases substantially. However, if one product pulls ahead, the other firm will stop investing. Besides, we find that when the intrinsic value and the network value coexist, the market becomes more concentrated, even when consumers’ marginal utility is small. The market concentration increases in both the consumers’ marginal utility and the indirect network effect but decreases in the degree of differentiation between consumers’ preference toward the two products. Interestingly, we show that differentiation plays an important role in shaping the market structure only when the network effect is weak. Counterintuitively, we show that the differentiation corrodes firms’ total profits, which demonstrates that less fierce competition resulting from low substitution leads to a lower profit. Additionally, we reveal that dynamic interaction between quality and installed base motivates firms to improve from a low quality, the first‐mover advantage does not ensure market dominance.

The impact of dynamic capabilities of platform firms on value co-creation - An empirical study based on chinese firms

This paper explores the mechanism of dynamic capabilities of platform firms on value co-creation in a complex environment. Based on previous studies, a theoretical model of the relationship between dynamic capabilities, indirect network effects and value co-creation is constructed, and data are collected by distributing questionnaires and empirically tested using structural equation modeling. The results show that the dynamic capability of platform enterprises positively affects the value co-creation of ecosystem, and the indirect network effect plays a mediating role between the dynamic capability of platform enterprises and value co-creation. Finally, relevant management recommendations are proposed based on the research results.

Consumers or infrastructure firms? Who should the government subsidize to promote electric vehicle adoption when considering the indirect network and herd effects

At present, two subsidy policies, which are based on electric vehicle (EV) consumers and EV charging station firms, have been widely implemented in different areas in China to promote EV adoption. However, the effectiveness of subsidy policies is significantly influenced by the indirect network and herd effects, depicting the positive impacts of the numbers of energy infrastructure firms and the sales of vehicles on consumers’ utilities, respectively. Taking the aforementioned effects into consideration, this study examines the optimal subsidy policies by developing a Stackelberg game model. The game model analyzes the interaction and decisions of multiple stakeholders (i.e., consumers, energy infrastructure firms, EV and gasoline vehicle manufacturers, and the government). Interestingly, we find that a stronger herd effect will promote EV sales when the unit production cost of EVs is low; however, it will hinder EV sales when the unit production cost is high. Besides, we compare the effectiveness of the two subsidy policies for promoting EV adoption, reducing environmental impacts, and increasing the social welfare. Findings show that the effectiveness of subsidy policies highly depends on the extent of the indirect network and herd effects. Specifically, compared with EV consumers-based subsidy policy, EV charging station firms-based subsidy policy will be more effective in only two conditions: a weak indirect network effect and a strong herd effect. Otherwise, the EV consumers-based subsidy policy will be more effective. The findings of the paper are helpful in enhancing the effectiveness of subsidy policy in China.

Airbnb exits China: insights from platform competition

ObjetivoEste artículo de opinión pretende aportar ideas sobre la salida de Airbnb del mercado chino, concretamente desde la perspectiva de la competencia entre plataformas.Diseño/metodología/enfoqueBasándonos en la comprensión de la evolución y la competencia del mercado de alojamientos P2P en China, así como en los “efectos de red de doble filo”, este artículo de opinión ofrece una discusión en profundidad sobre la retirada de Airbnb del mercado chino.ResultadosEste documento sostiene que Airbnb enfrentó desafíos crecientes para establecer ventajas competitivas únicas frente a sus rivales locales, demostrando estos últimos una capacidad de innovación y del mantenimiento de la lealtad de sus clientes al adaptarse a la evolución del mercado. En consecuencia, esto puede inhibir a Airbnb para atraer al mercado principal y llevar a la empresa a una espiral negativa, exacerbada por efectos de red indirectos.Originalidad/valorEste estudio ofrece una visión del fracaso de un proceso de internacionalización, a partir de un análisis del entorno competitivo y de las estrategias de competencia de las plataformas de alojamiento P2P en China. Estos resultados tienen implicaciones prácticas para la aplicación de estrategias empresariales internacionales en los alojamientos P2P.

Diffusion of electric vehicles in Beijing considering indirect network effects

Various policies on electric vehicles (EVs) have been implemented in Beijing to promote EV diffusion, but previous research has rarely considered the indirect network effects between EVs and EV charging infrastructures (EVCIs), and has not explored the impact of EVCI-related incentives on EV diffusion. This study aims to enrich the literature by incorporating EVCI development and indirect network effects in EV diffusion. A system dynamic model is proposed to systematically analyse the interactions among consumer, EV manufacturer and EVCI operator and simulate EV diffusion and ECVI investment in Beijing. Multiple scenarios are adopted to investigate the joint effects of the policy mix on EV diffusion. The results indicate that the oil-to-electricity subsidy promoted EVs and EVCIs to a greater extent than the license plate control policy. The EVCI maintenance policy outperformed EVCI construction and production subsidies on EV diffusion. Synergistic effects exist when the oil-to-electricity subsidy is mixed with EVCI-related incentives. This study provides implications for policymakers to promote EV diffusion with innovative and efficient policy instruments.

Value creation in interdependent digital and analogue markets

ABSTRACT This study investigates how the value propositions in interdependent digital and analogue markets differ from each other. For this purpose, we conducted a content analysis and comparative case-study of four Dutch journalistic platforms that operate in markets for print and online advertising and paying audiences (subscriptions or memberships). First, we find that in digital (online) markets the value propositions on both market sides are more fused than in analogue markets. Second, we find that this is the reason for online platforms that serve the paying audiences, to offer advertising-free content. This suggests that there is not always a mutual dependency of the two market-sides as platform scholars assume, but that there may be a tension arising from interdependency, where some users may actually be attracted to the absence of the other market-side (advertising) and indirect network effect exploitation.

Estimation of the indirect network effect: On the example of television advertising

The platform is an intermediary between groups of users whose direct interaction without the platform would be complicated or unachievable. A distinctive feature of platform markets is the presence of indirect network effects (or cross‐platform effects), which consist of the fact that the demand of one group of users for platform services affects the demand of another group of users. In the presence of multidirectional network effects, an important platform’s business decision is to determine the optimal volume of services that create negative network effects, since after a certain amount of effects the company starts to lose users on the other side of the platform. For the business model to be successful and profitable, the platform should take this relationship into account. This study makes a quantitative assessment of cross‐ platform network effects using data from the Russian television market. The author of the study obtained statistically significant positive audience effect and negative advertising effect.

Smaller Slices of a Growing Pie: The Effects of Entry in Platform Markets

Entry of new firms onto a platform has an ambivalent effect on the incumbent firms operating on the platform: the main tension lies between the negative effects of increased competitive pressure and positive indirect network effects. This paper empirically studies the net effect of these countervailing forces and its dependence on firm quality, using a quasi-exogenous shock on a large online platform. On average, market expansion favors incumbents, though the average effect masks substantial heterogeneity: high-quality incumbents experience significant increases in sales and revenue, whereas low-quality firms perform unambiguously worse. Lastly, the paper explores the main mechanisms and firms’ responses. (JEL D22, D85, L14, L15, L84)

From platform growth to platform scaling: The role of decision rules and network effects over time

Although firms increasingly operate with platform-based business models, only a few have been shown to prosper and survive in the long run. While the literature has traditionally focused on platform growth along with facilitating network effects through value creation, our knowledge around platform scaling remained rather limited. Using an inductive theory elaboration approach with a longitudinal case study of a two-sided platform, Takeaway.com, we offer in-depth understanding about how the top management team members used decision rules to navigate emergent opportunities and challenges over time, and to transition from platform growth to platform scaling. We find that the top management team members purposefully and repeatedly use and revise a portfolio of decision rules to cultivate indirect and data network effects, which allows them to initially facilitate the growth of their platform and over time support the transition to scaling the platform. Our findings provide important implications about the distinct nature of platform growth and platform scaling, and the role of decision rules in cultivating a combination of network effects over time in order to arrive at platform scaling and ensure platform survival and prosperity over an extended period.

Cournot platform competition with mixed-homing

Competition in quantity dates back to Cournot (1838) for traditional markets and Katz and Shapiro (1985) for markets with direct network effects. In this paper, we consider Cournot platform competition in two-sided markets with indirect network effects while allowing for single-, multi-, and mixed-homing allocations. We find that the markup and markdown terms that are typically found in monopoly two-sided pricing are distorted toward zero when platform competition intensifies. We also generalize the monopoly platform Lerner indices from Armstrong (2006) and Weyl (2010) to include competition and mixed-homing allocations. Lastly, we show that welfare decreases in the number of platforms for the most commonly considered homing allocations, highlighting how the welfare loss from breaking up a network across smaller platforms can outweigh the welfare benefits from lower aggregate prices in a setting where platforms are homogenous.

Latent Agents in Networks: Estimation and Targeting

Latent Agents in Networks: Estimation and Targeting In “Latent Agents in Networks: Estimation and Targeting,” Baris Ata, Alexandre Belloni, and Ozan Candogan address the problem of estimating network effects in a setting in which data only on a subset of agents is available. In this setting, the observable agents influence each other’s outcomes both directly and indirectly through their influence on the latent agents. Even in sparse networks, the combination of direct and indirect network effects yields a nonsparse influence structure that makes estimation challenging. The authors overcome this challenge and provide an estimation algorithm that performs well in high-dimensional settings. They also establish convergence rates for their proposed estimator and show that their performance guarantees are valid for a large class of networks. Finally, the authors demonstrate the application of their algorithm to a targeted advertising problem, in which it can be used to obtain asymptotically optimal advertising decisions despite the presence of latent agents.

The Diffusion of Competitive Platform-Based Products with Network Effects

The existence of network effects not only changes traditional product diffusion patterns but also has significant impacts on individuals’ decision behaviors. Previous studies on competitive product diffusion have focused on macro-level diffusion speed and effects while neglecting the micro-level impacts of individual heterogeneity and social interaction on product diffusion. This paper introduces the individual heterogeneities and social interactions of consumers into the competitive product diffusion model on the basis of a two-sided market framework and complex network theory. We proposed a small world network model and behavioral game theory. Specifically, the small world network model was used to build interactions between users, and behavioral game theory was utilized to describe the interactions between users. In our model, the direct network effect was distinguished from the indirect network effect on the basis of the synergy of multiple complementary products. The results show that the final distribution often presented a situation wherein two products coexisted, but the market share was very different. In an asymmetric first-mover situation, the direct network effect dominated the indirect network effect. Moreover, the dominant position of one product at present can be changed by the other under certain conditions. Finally, when the switching and learning costs were high, the market maintained its concentration, and the prior platform was unable to dominate the market. A decrease in the costs raised the prior platform’s market share and the speed of market occupation.

A game-theoretic model for crowd-shipping operations with profit improvement strategies

Taking advantage of app-based platform technologies to connect consignees and shippers, individual-based crowd-shipping (CS) services have become an emerging solution to intra-city deliveries. Compared with conventional logistics (CL) services, the individual-based CS service incentives ordinary people to use social networking to behave collaboratively for alternative deliveries. However, the interactions among several players in the intra-city delivery market with both CS and CL services are not fully investigated, so as the mutual attraction on consignees and shippers and their influences on the CS operations. Motivated by this, we propose a game-theoretic model to explore the CS operations, where indirect network effects are considered to model the mutual attractions between demands and supplies. The optimal strategies of different players are derived from this model, including the price decisions of the CS platform (fare charged from consignees and compensation paid to shippers) and the choice decisions of consignees (CS vs. CL services) and shippers (CS delivery vs. alternative activity). Results show that the indirect network effects reshape the intra-city delivery market with positive effects on the CS market share and the CS platform's profit. Viable policy implications and managerial insights for promoting CS development such as selecting target markets to launch CS services, expanding CS businesses, stimulating CS supplies, and enhancing CS services are proposed.

Competition among parking platforms in the presence of indirect network effects

A parking market including conventional public parking and novel shared parking is considered for matching parking demands and supplies. To investigate the competition between the public parking platform and the shared parking platform, a market equilibrium approach is proposed to investigate the interactions among the parking platforms, parking demanders, and parking owners, where indirect network effects referring mutual attractions between demands and supplies are incorporated. Targeted for profit maximization, we first formulate a basic model and derive the equilibrium results of parking platforms’ profits. Results show that indirect network effects positively affect the two parking platforms’ profits when the equivalent gains from alternative activities for parking owners are large, while negatively affect the profits otherwise in certain cases. Extensions regarding some considerations are then discussed, where Model D is proposed for dual decision of the shared parking platform and Model S is proposed for the social welfare maximization objective of the public parking platform. Comparisons of the three models in terms of equilibrium results are simulated consequently. Managerial implications to enhance the profits of the two parking platforms are further discussed.

Playing against the platform: A research note on the impact of exclusivity under vertical competition in video game platforms

The video game industry has experienced impressive growth and technological advancements over the last few years. This paper addresses a more nuanced conceptualization of the indirect network effect of the exclusivity of complements on a video game platform ecosystem, bringing a different theoretical approach from the bulk of the literature by focusing on the effects of exclusive agreements on complementors' performance, rather than on the performance of the platform itself. This issue is of interest given the existence of vertical competition between the platform owner and its complementors, which might raise strategic contingencies for the latter. Moreover, this study seeks to disentangle the effects of exclusivity on sales performance through different characteristics and distinct features inside and between platform ecosystems. The findings indicate that exclusive game titles perform worse than non-exclusive games if they are published by third parties when compared to in-house studios. Moreover, this effect is stronger when published in a platform with higher vertical competition.

“Saving Journalism from Facebook’s Death Grip”? The Implications of Content-Recommendation Platforms on Publishers and Their Audiences

Previous research on the platformization of news has mostly been devoted to considering the effects of social media on the news industry. The current study focuses on Taboola and Outbrain, two leading content recommendation platforms. The companies form “partnerships” with news organizations, through which they take over a designated space on news websites and curate news, sponsored content, and advertisements, creating a blend that—the companies claim—maximizes monetization. We argue that the unique business model and distribution mechanism of these companies has a distinct effect on news sites, their audiences, and ultimately the journalism profession. An empirical analysis of 97,499 recommended content items, scraped from nine Israeli news sites, suggests that the spaces created by these partnerships blur the distinction between editorial and monetization logics. In addition, we find the creation of indirect network effects: while large media groups benefit from the circulation of sponsored content across their websites, smaller publishers pay Taboola and Outbrain as advertisers to drive traffic to their websites. Thus, even though these companies discursively position themselves as "gallants of the open web"—freeing publishers from the grip of walled-garden platforms—they de facto expose the news industry to the influence of the platform economy.

Establishing successful e-commerce ecosystems: Evaluating strategies for reaching a critical mass of participants

Although e-commerce in general and platform business models in e-commerce report steadily increasing revenues, establishing e-commerce ecosystems is not a guaranteed success per se. Potential platform owners must carefully plan the ignition of the ecosystem to reach a critical mass of customers. This critical mass is crucial for the platform to benefit from direct and indirect network effects. However, research so far has not provided clear guidance and strategies on how to successfully establish ecosystems in e-commerce. Therefore, we evaluated and demonstrated generic platform ignition strategies in e-commerce. Our evaluation is thereby based upon an established mathematical model for two-sided markets considering utility gains from indirect network effects and costs. The heterogeneity of the individual market sides is reflected in the form of sigmoidal distribution functions. Applying this model, we show that subsidies, seeding, marquee, single side, micro market, piggybacking, opening up, and big bang marketing are potential strategies for reaching a critical mass of participants in e-commerce ecosystems. We provide guidance for practitioners on how to establish successful e-commerce ecosystems. We contribute to the body of knowledge strategies in e-commerce ecosystems by bridging critical mass and network effects.