Platform Markets Research Articles

The Effect of Recessions in Platform Market Competition

This paper examines the evolution of competition and network advantages in platform markets under recession. Presenting a demand-based perspective, it explores how an external event in the form of ...

Reputation and Feedback Systems in Online Platform Markets

Online marketplaces have become ubiquitous, as sites such as eBay, Taobao, Uber, and Airbnb are frequented by billions of users. The success of these marketplaces is attributed to not only the ease in which buyers can find sellers, but also the trust that these marketplaces help facilitate through reputation and feedback systems. I begin by briefly describing the basic ideas surrounding the role of reputation in facilitating trust and trade, and offer an overview of how feedback and reputation systems work in online marketplaces. I then describe the literature that explores the effects of reputation and feedback systems on online marketplaces and highlight some of the problems of bias in feedback and reputation systems as they appear today. I discuss ways to address these problems to improve the practical design of online marketplaces and suggest some directions for future research.

Waiting Time in Platform Markets

We define platform waiting time as the time users spend dealing with/within the platform. Even if users on one side dislike waiting time, platforms have an incentive not to minimize it to get extra revenues from users on the other side. We argue that waiting time for one side tends to increase once the management of the other side is outsourced. This effect will be reinforced when the outsourced side is the more prominent source for revenue generation. Also, concentration on the outsourced (in-house) side moderates waiting time positively (negatively). We test our hypotheses in the U.S. airport industry and find that while outsourcing per se does not increase waiting time, combined with revenue prominence and concentration of outsourced side do have the predicted effects.

Add-On Services, Bundling and Exclusive Contracts in Platform Markets

In several industries, merchants have the choice to offer add-on services to consumers either themselves or through a platform. In this paper, we analyze whether a platform has an incentive to impose exclusive contracts to merchants when the latter can bundle an add-on service to a primary product and compete with the platform. We show that the platform never imposes exclusive contracts when the maximum value that consumers assign to the primary product is high. When the maximum value of the primary product decreases, the platform trades off between increasing consumer demand by offering exclusive contracts and increasing merchants' acceptance of its service by offering non exclusive contracts.

Spotting Lemons in Platform Markets: A Conjoint Experiment on Signaling

This study addresses the understudied question of how content integrity for digital goods is signaled ex-ante in the absence of centralized oversight in self-organizing platforms. We build on signaling theory to theorize three classes of signals to explain how and why they influence platform user behavior. Experimental data from 380 users show that in the absence of centralized oversight in platforms a portfolio of signaling mechanisms is used to assess content integrity. Platform users differentially weigh platform, content, and contributor signals but simultaneously triangulate them to form holistic inferences about risk vis-à-vis benefit to spot potential “lemons” in a platform market. Implications for practice, especially for platform design, are also discussed.

Waiting Time in Platform Markets

Using recent literature in platform markets we study the concept of platform waiting time as the time that users spend dealing with or within the platform. Even if platform users dislike this waiti...

Design Parameters of Business Models in Two-Sided Markets: Strategies for App Platforms

App platforms are two-sided marketplaces in which apps – software for mobile devices like smartphones and tablets – are distributed. They are part of a larger ecosystem and gained popularity after Apple launched its App Store in 2008. Since then, app platforms have transformed the entire mobile communications industry. They mediate between distinct groups of customers, developers of apps and users, who are connected through indirect network effects. The interdependencies of customers, platforms and developers demand a consideration of strategic issues not covered by traditional analysis, for example with regard to pricing and fee structures, quality assurance, or ecosystem openness. An industry analysis of the app platform market indicates the importance of understanding these strategic dynamics to establish successful business models in this domain. To address the shortfalls of traditional models, we bring together literature on platform management with economics literature on two- and multi-sided markets in order to establish a suitable framework for an analysis of app platforms. We apply this framework to derive and discuss critical design factors for business models in app platform markets at different life cycle stages (design, launch and competition). In doing so, we contribute to a more fine-grained template for both research and managerial decisions within this important part of the mobile ecosystem.

Platform Markets and Matching with Contracts

A matching problem exists when two sets of agents want to find each other. Platform markets can provide a solution to this problem. However, existing models of platform markets restrict agent heterogeneity and thus the matching problem is trivial. We introduce agent heterogeneity by modeling platform markets as a matching problem. This raises three important questions. The first question is how to model matching in platform markets. We propose a model in which platforms are objects of choice, with agents matching directly with each other. Second, we adopt stability as our equilibrium concept since it eliminates the possibility of an individual or group of agents switching in equilibrium. Third, we consider properties of equilibrium. In particular, we show that opposition of interests at stable matchings implies a form of the “seesaw principle:” in equilibrium, one side gets more favorable terms at the expense of the other side. Moreover, we provide conditions under which the market may tip toward a dominant platform in equilibrium. Finally, we show that coordination failure occurs if agents from the same side are required to join a platform under the same terms. In this environment, we obtain stability if agents have lexicographic preferences. Our matching model provides a new approach to studying platform markets.

Platform envelopment

AbstractDue to network effects and switching costs in platform markets, entrants generally must offer revolutionary functionality to win substantial market share. We explore a second entry path that does not rely upon Schumpeterian innovation: platform envelopment. Through envelopment, a provider in one platform market can enter another platform market, and combine its own functionality with that of the target in a multi‐platform bundle that leverages shared user relationships. Envelopers capture market share by foreclosing an incumbent's access to users; in doing so, they harness the network effects that previously had protected the incumbent. We present a typology of envelopment attacks based on whether platform pairs are complements, weak substitutes, or functionally unrelated and we analyze conditions under which these attack types are likely to succeed. Copyright © 2011 John Wiley & Sons, Ltd.

The Control of Porting in Platform Markets

In platform markets, economies of scale combined with complementarities between a platform and its associated software or services can generate lock-in because of indirect network effects (positive feedback between the number of consumers using that platform and the utility of an individual consumer). In such circumstances, the control of porting – porting being the conversion of software or services developed for one platform to run on another – may be central to the development and maintenance of a dominant position. Focusing on the case where a dominant proprietary platform exists, we show that the ability to control porting has significant implications for pricing, market power and welfare. As such, a proper understanding of porting will be crucial to antitrust analysis of platform markets (increasingly frequent in our digital world). This is illustrated by the centrality of porting issues to several well-known recent cases including that of Microsoft in relation to its browser and its media player, Apple in relation to its DRM and iTunes, and Ebay in relation to its use of the cyber-trespass doctrine to prevent competitor's access to its site.

Applications Barriers to Entry and Exclusive Vertical Contracts in Platform Markets

Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to applications barriers to entry. Theory suggests that exclusive contracts in vertical relationships between the platform provider and software supplier can heighten the entry barriers. We test these theories in the home video game market. We measure the impact on hardware demand of the indirect network effects from software. We find that although network effects are present, the marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to a market structure dominated by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting.

Analyzing Market Definition and Power in Multi-sided Platform Markets

The SSNIP test and Critical Loss Analysis are widely used tools for determining market definition in merger and sometimes other antitrust matters. However, the standard techniques used to test for a relevant antitrust market are incorrect when the firms in question operate two-sided platforms. When a two-sided platform raises price on one side of its business, it negatively impacts both sides iteratively. We show how Critical Loss Analysis can be extended to the case of two-sided platforms and drive formulas for its implementation. We perform comparative statics to show that the bias from the misuse of one-sided formulas in a two-sided setting can be large.

Bank Interchange of Transactional Paper: Legal and Economic Perspectives

Bank Interchange of Transactional Paper: Legal and Economic Perspectives