Platform Competition Research Articles

A study on interplatform competition based on a Lotka–Volterra competition model focusing on network externality

Based on a Lotka–Volterra model of ecological population competition, this paper introduces cross-network externality parameters to develop a bilateral platform dynamic competition model. Using this new model, we analyze the influence of cross-network externalities on the equilibrium market structure of platform competition and the dynamic evolution of the market structure of platform competition. First, relying on the analytical results, we explore the influence of the platform’s own cross-network externalities and the mutual inhibition effects on the equilibrium market structure of platform competition. The analysis results show that when two platforms are in a competitive relationship, the impact of the intrinsic growth rate of platform users on the coexistence area can be ignored, but the impact on the monopoly area is greater. When the growth rates of the two platforms differ greatly, the platform with the higher growth rate can easily monopolize the market, without considering the inhibitory effect of the opponent. Therefore, the optimal strategy for the platform is to compete for traffic and gain a short-term advantage. In addition, when cross-network externalities and mutual inhibition effects meet certain conditions, i.e., θi+|rji|<1, competitive platforms can maintain a stable and coexisting market structure. Second, we build a three-platform competition model to study the impact of the introduction of the third platform on the market structure and investigate the conditions under which new platforms can enter the market stably. The results show that when the new platform cannot bear the threshold of competition pressure from the duopoly, even if it improves the platform’s own cross-network externalities, the new platform cannot gain a foothold in the market. Finally, we conduct an empirical analysis of the competitive relationship between two online food delivery platform giants: Ele.me and Meituan. We verify the conclusions drawn from the theoretical research and predict the development status and trends of the online food delivery platform market.

Exclusionary innovation in the European Commission’s decisions against Google

ABSTRACT Exclusionary innovation poses a bigger threat to competition in digital platform markets than in other innovation markets given the relevance of data-driven network effects as well as the strong incentive and ability of digital platforms to pursue an envelopment strategy. This paper advocates a theory of harm called “platform-wide exclusionary innovation” which applies to conduct that plausibly creates short-term consumer benefit but is more likely to foreclose rivals and therefore reduce technological progress in the long run. This theory of harm can help to explain Google’s conduct that the European Commission condemned in its three decisions against Google between 2017 and 2019. Due to interconnections between Google’s practices in the three cases this article assesses whether they may be considered jointly for the purpose of finding of an infringement of Article 102 TFEU or under the proposed Digital Markets Act.

Correction to: The cultural impact in platform competition

Correction to: The cultural impact in platform competition

Platform Compatibility and Developer Multihoming: A Trade-off Perspective

Digital platform ecosystems feature interplatform competition. A potential strategy for a platform with market disadvantage is to make itself compatible with competitors to attract multihoming of developers. However, many questions remain unresolved regarding how a platform’s compatibility strategy impacts developers’ multihoming decisions and subsequent app performance. In this study, we use the context of web browser platforms (i.e., Firefox and Chrome) to investigate how the increase in the technological compatibility of a secondary platform (Firefox) influences developer multihoming from a primary dominant platform (Chrome). We theoretically consider how increased platform compatibility influences the trade-offs in developers’ multihoming decisions and their subsequent app development choices. Based on this trade-off perspective, we posit and empirically investigate the effects of increased platform compatibility on developer multihoming, and the subsequent development choices and app performance resulting from multihoming. Our findings illustrate that developers with larger user bases on the primary platform are more willing to multihome than those with smaller bases, but increased platform compatibility reduces this gap and enables developers with smaller user bases to better embrace multihoming. Increased platform compatibility also encourages multihoming developers to develop exclusive apps for the secondary platform. Moreover, increased platform compatibility facilitates multihoming developers to leverage their primary-platform user bases to enhance their secondary-platform app performance, and this effect is influenced by the development type (porting or exclusive development). Our study generates unique insights that add to the theoretical understanding of platform compatibility, multihoming, and platform competition.

Propozycje wzmacniania uczciwej konkurencji poprzez platformy konkurowania branżowego

The publication contains an innovative proposal for the introduction into Polish law of two legal institutions that will support fair competition. These institutions will concern the so -called platform competition, which is not widely known in Poland (especially recently promoted by the EU Commission). In the article, the author first describes for whom these new information resources will be directed, then suggests their thematic scope. Importantly, he also suggests how to create new structures of presentation, so as to facilitate comparison. Finally, he shows how to ensure that only useful information resources are placed on these platforms, i.e. only those which can be used to compare offers. The first solution is to introduce directly on the platform several new information obligations. They will facilitate the comparison of even very complex offers. The second proposal relates to the institution of accreditation, that is, to create new mandatory and cyclical evaluations of larger entrepreneurs in specific industries, performed by accreditation bodies. The author proposes that, following the example of higher education, such accreditations would be performed only by independent bodies, with experts with a high level of knowledge. In the publication, both new solutions are not only thoroughly described, but for rapid implementation, the article also gives the existing legal constructions, which can be quickly adapted.

The cultural impact in platform competition

The cultural impact in platform competition

플랫폼 경쟁과 멀티호밍 제한: 교차 네트워크 효과의 비대칭성과 구매자 유형의 불완비정보

Purpose - This paper aims to analyze competition between two platforms with asymmetric cross indirect network effects under hidden buyer sensitivity. Platforms are differentiated by indirect network effects toward buyers that are also differentiated privately with sensitivity to the effects. Design/Methodology/Approach - We set up a platform competition model based on a signaling game and thus characterized a perfect Bayesian Nash equilibrium. A nature selects two types of buyer with a certain probability. Each type of buyer chooses one platform (single-homing). Sellers can choose either single-homing or multi-homing with price setting and complete trade with buyers. Findings - First, the leading platform with stronger cross network effects does not always mandate exclusive homing for sellers. Second, in a two-sided market where the small platform is significantly weak, a leading platform does not mind seller multihoming if buyers sensitive to indirect network effects are numerous enough. However, price discrimination under seller multihoming lowers social welfare. Third, when platforms are close enough in indirect network effects, a leading platform always wants to impose mandatory exclusive homing on sellers. A seller can raise prices and narrow trades to buyers with high willingness-to-pay only responding to mandatory exclusive homing, which lowers social welfare. Research Implications - Asymmetry between platforms in indirect network effects and buyer hidden sensitivities to the effects must be scrutinized to design effective policy instruments to promote competition in the platform market.

Getting more third-party participants on board: Optimal pricing and investment decisions in competitive platform ecosystems

In two-sided markets, hardware/software platforms meet the unified and personalized demands of consumers through hardware and software products respectively, forming their own ecosystems. For platform enterprises, how to drive third-party value creation through interface extensibility investment (typically on application programming interfaces, or APIs) under different pricing schemes, has become a critical issue under intensified competition. In this paper, we build game theoretic models in four platform competition scenarios (NR, NRT, IR, IRT) considering both investment decisions—no investment (N), investment (I), and pricing decisions—registration fee only (R), registration fee and transaction fee (RT), and analyze the competitive equilibrium in each scenario. Our results show that: (1) Although “reducing price” and “enhancing investment” are partial substitutes, platforms are still incentivized to implement both strategies. Contrary to the traditional wisdom, when platforms with investment charge both registration and transaction fees, the strengthening of cross-side network effect may lead to an increase in registration fee on both sides. (2) The improvement of interface extension effectiveness (cost reduction for developers per unit of investment from platforms) shifts more developers from single-homing to multi-homing, leading to fiercer market competition and thus lower platform profit in equilibrium. (3) Although implementing investment may not be optimal from the profit perspective, it does help platforms in securing a larger market share on the developer side. (4) The existence of same-side network effect enhances both side users’ incentive to enter the market; however, for the platforms, they should carefully mind the irrational price competition to avoid falling into profit-hurting traps.

Is “Choose One” Policy Profitable?

Some platforms with superior digital analytics service technology ask users to ``choose one of two platforms'' to restrict users’ homing choices. We develop a game-theoretic model in a duopoly setting to investigate the impacts of the ``choose one'' policy and asymmetry in digital analytics service technology on platform competition. We first examine how the asymmetry in digital analytics service technology influences equilibrium market demands, prices, and profits of the two platforms under four different users' homing scenarios. We find that under scenarios influenced by the ``choose one

Platform Competition: Boundary Conditions of the Winner-Take-All Hypothesis

This study explores the validity of the Winner-Take-All (WTA) hypothesis and the underlying mechanisms that condition the relationship between the installed base of a platform and the platform’s performance in the context of emerging markets. We propose a positive relationship between the existing user base of a platform and the platform’s performance and explore the moderating effects of two boundary conditions: existing users’ evaluation ambiguity and economic policy uncertainty (EPU). By utilizing a longitudinal sample of 124 Chinese peer to peer lending (P2P) platforms from 2017 to 2019, we confirm the positive relationship between the installed base of a platform and the platform’s performance, however, the positive relationship will be weakened when the existing users provide ambiguous evaluation information and will be strengthened when the level of EPU is high in the external environment.

Two Goliaths, Same Difference? The Impact of Platform Architecture on Social Networking Start-up’s

We study how platform architecture affects different aspects of the performance of a multihoming social media complementor that is not the leader in the industry. There is a paucity of empirical evidence that disentangles either the different aspects of complementor performance on platforms or the attributes of platforms themselves. Using proprietary data on a new social networking app, we examine how platform openness and complexity impact the app's user performance, functional performance, and how the performance measures interact. We find that platform openness has a negative relationship to user performance, just as platform complexity does. However, for functional performance, we find a positive relationship for openness but a negative one for complexity. We also show a negative relationship between functional performance and user performance. Controlling for this negative relationship, we find that the platform architecture's main hypothesized effects on user performance and functional performance remain unchanged. The study has important implications for platform competition and for start-up apps reliant on user-generated content that are considering growing their user base through multihoming and are not the leaders in the industry.

Exclusive content and platform competition in Latin America

Platforms often compete over non-price strategies such as the exclusive distribution of products. But these strategies are not always welfare-enhancing. Using rich data on audiovisuals distributed on platforms in Brazil, we find that non-exclusive distribution and availability of titles across platforms is more effective in deterring online piracy than in the single-homing case. Moreover, for the subset of domestic movies, it induces higher average investment in the quality of new titles upstream. We discuss options of copyright and competition policies in the light of these findings.

Platform competition and price discrimination

Platform competition and price discrimination

Platform competition and complementor responses: insights from combining design rules with the comparative adjustment, transaction, and opportunity cost framework

Abstract Platform owners regularly make decisions regarding whether, when, and how to upgrade their platforms as they compete with other platforms. These decisions must consider how platform complementors and rivals are likely to respond to various changes because a platform suffers in competition when the quantity or quality of its complementors is low. This paper analyzes such interactions in the US videogame industry. We show how a combined design rule-comparative adjustment, transaction, and opportunity cost framework can help to explain and predict these interactions in this industry.

Group Hug: Platform Competition with User Groups

We consider platform competition for small users and a user group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users’ coordination problem—i.e., joining a low-quality platform because they believe that other users would do the same. We find that a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users’ utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market. (JEL D85, L14)

Bilateral value-added service investment in platform competition with cross-side network effects under multihoming

To expand users’ scale and enhance competitiveness, many third-party platforms have focused on investing in value-added service (VAS). This study focuses on bilateral VAS and pricing decisions of two competing platforms with different investment costs. Platforms’ bilateral users, including manufacturers and suppliers, can access one or two platforms (i.e., bilateral users can be multihomed). By developing a Hotelling model, we study the differences in VAS investment and pricing between two platforms considering cross-side network effects (CNEs) and propose the strategies of bilateral VAS and pricing for platforms. Then, compared to the situation of no VAS, we analyze the influence of VAS investment on platform pricing. The results show that unlike the platform with high marginal investing cost, the platform with low marginal investing cost offers a higher VAS level to its bilateral users, but may charge them less. Under some conditions, the platform with low marginal investing cost should provide a high level of VAS for manufacturers but charge them a low fee, and simultaneously provide a low level of VAS for suppliers but charge them a high fee. While the platform with high marginal investing cost should provide a high level of VAS with subsidies for manufacturers but a low level of VAS with charges for suppliers. Moreover, we also find that regardless of platforms’ marginal investing costs being high or low, they always charge suppliers more after investing in VAS, but may charge manufacturers less, or subsidize them more.

Collusion between non-differentiated two-sided platforms

Platform competition can be intense when offering non-differentiated services. However, competition is somewhat relaxed if platforms cannot set negative prices. If platforms collude they may be able to implement the outcome that maximizes industry profits. In an infinitely repeated game with perfect monitoring, this is feasible if the discount factor is sufficiently large. When this is not possible, under some condition, a collusive outcome with one-sided rent extraction along the equilibrium path can be sustained that leads to higher profits than the non-cooperative outcome.

Two-Sided Platform Competition in a Sharing Economy

We examine competition between two-sided platforms in a sharing economy. In sharing economies, workers self-schedule their supply based on the wage they receive. The platforms compete for workers as well as consumers. To attract workers, platforms use diverse wage schemes, including fixed commission rate, dynamic commission rate, and fixed wage. We develop a model to examine the impacts of the self-scheduled nature of the supply on competing platforms and the role of the wage scheme in the platform competition. We find that the price competition between platforms is more intense in a sharing economy compared with an economy with a fixed supply of workers if and only if the platforms serve more consumers and workers in the sharing economy than in the traditional economy, regardless of the wage scheme employed by the platforms. Further, any of the three wage schemes can be the best for the platforms and the worst for consumers and workers, depending on the market characteristics. In markets where the competition is more fierce on the demand side than on the supply side, the fixed-wage scheme results in the highest profits for the platforms and lowest surpluses for consumers and workers. In contrast, in markets where the competition on the supply side is more competitive, when the supply is highly (mildly) more competitive, the fixed-commission-rate (dynamic-commission-rate) scheme generates the highest profits for platforms, leading to the lowest surpluses for consumers and workers and the lowest social welfare. The differential impacts of the wage scheme on the price (demand side) and quantity (supply side) competition explain our findings. This paper was accepted by Kartik Hosanagar, information systems. Supplemental Material: The e-companion is available at https://doi.org/10.1287/mnsc.2022.4302 .

E-Commerce Engagement: A Prerequisite for Economic Sustainability—An Empirical Examination of Influencing Factors

Economic sustainability for firms of all sizes and sectors is likely to depend on some type of online commercial activity. While technical barriers to e-commerce are not high, adaptability to new online markets is a critical part of sustainable economic growth for many firms. The Chinese e-commerce market has increased dramatically to become larger than that of the United States, Europe, and Japan combined. This study explores the underlying factors that influence Chinese online consumers’ acceptance and patronage of the online shopping platforms where those firms must operate. Firm competition in the e-commerce platform in China is highly competitive, making exploration of the factors that influence consumer purchase behaviour more valuable. After an extensive qualitative focus group study, a quantitative online survey of 691 savvy Chinese online shoppers was completed. When the data was subjected to structural equation modelling (SEM) for analysis, it was found that a model of three factor constructs explains whether an online shopping platform would be the preferred online shopping platform of choice. E-commerce platform preference (EPP) can predict purchase intention (PI) and site commitment (SC). The results explain why e-commerce platforms should address important EPP factors such as: order fulfilment and delivery process, company image enhancers, the variety of products offered, the design of the online shopping platform, trust of its recommendation system, and finally, awareness of the online shopping platform itself. These findings may be of interest to e-commerce practitioners as well as those whose research interests include e-commerce and consumer behaviour.

Platform Competition with Asymmetric Access Costs

We analyze competition between platforms under asymmetric access costs. Agents that belong to one platform do not pay access costs, but agents that participate in other platforms pay a positive access cost. An example is competition between application stores for mobile smart phones, because application users can pay for additional access costs to download and install third-party application stores instead of using preinstalled application stores. The equilibrium prices are much more complicated than those of symmetric access cost case which is analyzed by Armstrong (2006). It is clear that asymmetric access costs will reduce the equilibrium market shares of the platform with the disadvantage on both sides. However, the effects of asymmetric access costs on the equilibrium prices of both sides are ambiguous and rely mainly upon the relative levels of two different cross network effects.