Platform Entry Research Articles

Optimal advertising structure in the presence of a platform owner’s entry

As consumer demand for mobile electronic items (e.g., mobile phones, tablets, or wearables) rises, advertising competition among electronics manufacturers becomes more intense. Moreover, platform owners that offer platforms for electronics manufacturers may use private labels to enter the manufacturers’ market, which further prompts the manufacturers to advertise in response to platform entry. We study how a platform owner’s entry affects advertising and price competition for a strong manufacturer and a weak manufacturer who are differentiated in production costs and advertising efficiency, and reveal the impacts of platform entry and two typical revenue models on the optimal advertising structures of supply chain members in the platform-based market. In the absence of entry, we discover that a relatively larger production cost advantage induces only the strong manufacturer to advertise while a relatively higher advertising efficiency advantage induces only the weak manufacturer to advertise in the wholesale model. In the bundling model, we show that the platform is always beneficial from the advertising of the manufacturer who can generate higher marginal revenue. With entry, our analysis reveals how the production cost of the platform and the differences in advertising efficiency between the manufacturers affect the optimal advertising structure. In particular, we find that as the production cost increases, the platform first prefers only the weak manufacturer to advertise and then both manufacturers to advertise. In practice, our findings have significant managerial implications for platform owners and electronics manufacturers engaged in advertising competition.

Hybrid platforms with free entry: demand-enhancing activities

AbstractWe study the decision of a platform as to the quantity and quality of the products to sell directly on its own marketplace, where also third-party sellers decide how much to invest in the quality of their products. Using a representative agent framework that is based on a quasi-linear quality-augmented indirect utility function, we show that, under free entry, the quality investments of sellers do not change with platform entry, while the number of joining sellers does. Moreover, contrarily to what is found in the received literature, the platform may go hybrid even in the case it does not enjoy a competitive advantage vis-á-vis third-party sellers. We then study the welfare implications of a platform’s entry decision and show that promoting sellers’ investments and/or contrasting platform entry may lead to a larger as well as a lower consumer welfare. This depends on the platform’s response in equilibrium, both in terms of changes of its quality-enhancing investments and the fee charged on the revenues of third-party sellers.

A theoretical framework for platform-to-platform cooperation: a multi-case study from China

PurposeThis study explores the factors that influence platform-to-platform cooperation (PPC) and designs a theoretical framework for platform research.Design/methodology/approachThis multi-case study includes a combination of exploratory and explanatory case studies.FindingsFrom the internal factor perspective, channel integration capability, technology-based order matching capability and service innovation capability positively affects the PPC. From the perspective of external factors, the impact of a new platform entry on the PPC depends on market power and complementarities between platforms in the supply and value chains. Diversity of demand also has a positive effect on the PPC, which is moderated by network externalities. It is worth noting that the incumbent platform prefers to diversify its services for collaborating platforms with a higher level of cooperation. In addition, the higher diversity of demand, the stronger the service innovation capability, which indirectly impacts cooperation positively.Originality/valueThe PPC has gained immense popularity in recent years. However, no scholars have investigated the factors influencing the PPC decisions, which warrants further exploration. This study sheds light on the factors and mechanisms that influence the PPC from both internal and external perspectives.

Competing platform owners’ entry and an OEM's cooperation response

AbstractThis paper develops a game‐theoretic model that examines the entry decisions of two competing platform owners with differentiated research and development (R&D) efficiency and the response strategy of an original equipment manufacturer (OEM) in selecting which platform to cooperate with. The OEM and platform owners compete on quality and price in the face of consumers with heterogeneous preferences across the dimensions of the device and platform. We analyze the interaction between the entry decisions of platform owners and the OEM's response strategy within two cooperation models. In the charging model, we find that in the absence of entry, the OEM prefers the high‐efficiency platform. When only one platform owner enters, the OEM prefers the low‐efficiency platform. If the differentiated R&D efficiency and the device differentiation cost are large, both platform owners will choose to enter and the OEM will cooperate with the low‐efficiency platform. In the bundling model, when only one platform owner enters, only at a large cost of device differentiation will the OEM cooperate with the platform that enters the market to weaken market competition. In particular, when only the high‐efficiency platform enters, it is interesting that there exists a large cost of device differentiation that makes the high‐efficiency platform more favorable in the case when the OEM cooperates with the low‐efficiency platform. Our study provides practical insights into platform entry and OEM response.

Can an E-commerce Platform and its Third-Party Sellers Benefit From Each Other’s Market Entry?

E-commerce platforms have an informational advantage over their third-party sellers, leading to the common belief that a platform's market entry would harm sellers with similar products. However, unlike traditional retail competition, the platform and its sellers have aligned incentives: the platform's commission depends on the seller's revenue, and sellers rely on the platform to strengthen their online presence. Hence, the platform has no incentive to enter the market to harm the seller's revenue severely. This paper introduces a duopoly model where the seller is the "incumbent" and the platform is the "potential entrant". Our model captures two salient features: (a) the "reputation effect" that enables the platform to obtain a higher consumer valuation than the seller, and (b) the "spillover effect" that expands the market size when an additional entity (e.g., the platform) enters the market. Our equilibrium analysis debunks the prevailing belief about platform's entry, showing that platform's entry can enable both the platform and the seller to obtain a higher profit when the unit cost is sufficiently low and the spillover effect is sufficiently high. For robustness checks, we consider three different extensions: an alternative duopoly model with reversed roles where the platform is the incumbent and the seller is the potential entrant, a scenario with an endogenously determined spillover effect, and a simultaneous market entry/exit decision-making process. We find a consistent result across all three extensions that both seller and platform entries can mutually benefit under similar market conditions, fostering a symbiotic relationship.

Friends or Foes? The Effect of IoT Platform Entry Into Smart Device Market Under Quantity Discount Pricing Contract

Friends or Foes? The Effect of IoT Platform Entry Into Smart Device Market Under Quantity Discount Pricing Contract

Can Merchants Benefit from Entry by (Amazon-Like) Platform if Multiagent Prices Signal Quality?

Merchants need not fear platform entry because that can raise merchants’ profits by resolving quality uncertainty for consumers.

Multihoming and Oligopolistic Platform Competition

We provide a general framework to analyze competition between any number of symmetric two-sided transaction platforms, in which buyers and sellers can multihome. We show how key primitives such as the number of platforms, the fraction of buyers that find multihoming costly, the value of transactions, and the degree of user heterogeneity jointly determine the level and structure of platform fees. Even though platform entry always reduces the total fee level, whether it shifts the fee structure in favor of buyers or sellers depends on whether most of the buyers are singlehoming or multihoming. (JEL D43, L11, L13, L40)

Platform Oligopoly with Endogenous Homing: Implications for Mergers and Free Entry*

Consumer multi‐homing is critical for competition policy regarding digital platforms. To assess the role of multi‐homing, we embed endogenous homing into a model of oligopolistic competition between two‐sided platforms and apply it to mergers and free entry. We find that the required merger‐specific cost reduction is larger if consumers benefit more from multi‐homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi‐homing. These results contrast the belief that multi‐homing mitigates the need for stricter policy. We also show that reductions to sellers' benefit from multi‐homing reduces entry (is an effective entry barrier).

Flying in Flocks? How Platform Entry Influences Firm Strategies in Traditional Industries?

Flying in Flocks? How Platform Entry Influences Firm Strategies in Traditional Industries?

Ad Clutter, Time Use, and Media Diversity

We introduce advertising congestion along with a time use model of consumer choice among media. Both consumers and advertisers multihome. Higher equilibrium advertising levels ensue on less popular media platforms because platforms treat consumer attention as a common property resource: smaller platforms internalize less of the congestion from advertising and so advertise more. Platform entry raises the ad nuisance price to consumers and diminishes the quality of the consumption experience on all platforms. For consumer welfare this price effect of entry dominates the positive effect of more variety in some settings; thus, consumers will then be worse off after entry. (JEL D11, D43, L13, L82, M37)

The interactions between upstream quality disclosure and downstream entry

Currently, an increasing number of online platforms are entering retail markets, sharing a common manufacturer with traditional retailers. This study focuses on the platform entry strategy in a supply chain, where a manufacturer that could voluntarily disclose quality information sells its product via a retailer. Two common distribution contracts (reselling and agency selling) between the manufacturer and the online platform are considered. We find that downstream entry induces the manufacturer to reveal more quality information to the consumer than in the monopoly setting and that the agency contract results in a higher (lower) transparency level of the supply chain than the reselling contract when the commission fee is small (large). Moreover, contrary to the conventional wisdom that downstream entry likely harms incumbent retailers, we show that entry is not necessarily a problem that harms existing traditional retailers due to the increased quality transparency caused by entry. It is generally believed that a higher commission fee may encourage the platform to adopt the agency contract. In contrast, we demonstrate that the platform does not always benefit from a higher commission fee when an agency selling contract is adopted; the platform still chooses a reselling contract to enter the market in a context with asymmetric quality information, despite the higher commission fee. That is, the manufacturer’s quality disclosure can create a new win-win outcome for the platform and manufacturer in the choice of distribution contract.

Integrating logistics service or not? The role of platform entry strategy in an online marketplace

We study whether an e-commerce platform should costly establish self-owned logistics to support the logistics distribution services of both the manufacturer and e-tailer. We derive optimal logistics integration strategies and investigate the influence of the logistics integration decision on the platform entry decision of the manufacturer. We find that no matter who provides the logistics service, the platform entry decision is the only dominant decision for the manufacturer given that the manufacturer has priority in pricing. For the e-tailer, when the product cross-price elasticity coefficient is large, regardless of the unit logistics service cost, the e-tailer will be better off under the scenario where a third-party provider provides the logistics service. When the cross-price elasticity coefficient is small and the platform commission rate is high, the dominant strategy of the e-tailer depends on the unit logistics service cost gauge of both the e-tailer and the third-party logistics provider. In addition, when the cross-price elasticity coefficient is moderate, building a logistics system is always the most favorable option for the e-tailer.

Platform Entry and Innovation: How Adjustment Costs Shape Complementor Innovation Strategies

Extant literature has made contrasting arguments regarding complementors’ response to platform entry. Scholars have documented both higher and lower ex-post complementor innovation in domains affected by entry. We argue that a cross-platform study of complementors’ response to entry and examining their resource redeployment adjustment costs to competing platforms can reconcile these contrasting findings and explain complementors’ post-entry innovation strategies. We hypothesize that complementors with high adjustment costs will focus and increase their innovative effort on the focal platform and the affected domain, whereas those with low adjustment costs will shift innovation effort to the competing platform. We empirically test our hypotheses in the context of mobile app platforms and analyse Apple’s entry in the App Store with the “Files” application in 2017. We use difference-in-differences and coarsened exact matching methods to analyse innovation outcomes of 340,474 affected and unaffected applications produced by 30,044 developers. Supporting our arguments, we find that high-adjustment-cost developers increase ex-post innovation on the focal platform (Apple App Store), whereas low-adjustment-cost developers redeploy resources to the competing platform (Google Play Store). We contribute to literature on platform innovation strategy by highlighting the heterogeneity in complementors’ strategies in response to platform entry.

“Digital Colonization” of Highly Regulated Industries: An Analysis of Big Tech Platforms’ Entry into Health Care and Education

Digital platforms have disrupted many sectors but have not yet visibly transformed highly regulated industries. This study of Big Tech entry in healthcare and education explores how platforms have begun to enter highly regulated industries systematically and effectively. It presents a four-stage process model of platform entry, which we term as “digital colonization.” This involves provision of data infrastructure services to regulated incumbents; data capture in the highly regulated industry; provision of data-driven insights; and design and commercialization of new products and services. The article clarifies platforms’ sources of competitive advantage in highly regulated industries and concludes with managerial and policy recommendations.

Recommenders’ originals: The welfare effects of the dual role of platforms as producers and recommender systems

We study a model of strategic interaction between a producer and a platform that employs a recommendation system, following an information design approach. Upon entry into the production market, the platform biases recommendations to credibly steer consumers towards its own goods. Despite the increased upstream competition, platform entry and self-preferencing can decrease consumer welfare and result in foreclosure of the independent producer. We then consider the natural policy remedy of separating recommendation and production or imposing unbiased recommendations and find it leads to welfare gains if the platform’s revenue potential is large enough, but to significant welfare losses when it is not. The ambiguity of such a policy’s welfare implications and the dependence on the industry’s returns highlights the importance of targeted restrictions on platform self-preferencing.

Big Tech Platform's entry into the insurance industry and legal improvement tasks

빅테크 플랫폼의 보험업영역 진입에 대하여 금융당국은‘공정 경쟁 과 ‘혁신’,‘금융소비자의 편익 증대’라는 세 마리의 토끼를 잡을 심판자로서의 역할에 충실해야 한다. 빅테크 플랫폼에 대한 규제는 오프라인 위주의 획일적인 금융규제를 상향 적용할 것이 아니라, 플랫폼으로서 비대면 채널 특성에 맞는 체계적이고 특화된 맞춤 규제의 설계를 하는 것이 타당하다. 우선 플랫폼의 보험 판매·중개에 대한 라이센스를 시급히 정비할 필요성이 있다. 플랫폼 사업자가 법적인 모집자격을 갖추고 직접 서비스를 제공할 수 있도록 GA 진입요건을 개선해야 한다. 다음으로 플랫폼의 보험 판매에 대한 책임 및 행위규제도 정비해야 한다. 보험시장의 독과점화와 플랫폼 종속화, 소비자를 오인하게 하는 행위 및 손해 전가 등 우월적 지위 남용을 막고 공정경쟁 환경을 조성하기 위해서는 빅테크 플랫폼의 데이터 독점과 알고리즘의 편향성, 소비자를 오인하게 할 행위 등을 막을 각종 행위규제들을 신설해야 한다. 이를 위해 우선 보험업을 넘어서 전체 디지털금융 관점에서 빅테크 플랫폼의 특수성을 반영한 특화된 전문 규제체계 또는 법률(빅테크 감독법)을 새롭게 마련하는 것이 바람직할 것으로 본다. 온라인 플랫폼을 통해서 보험상품과 서비스를 합법적으로 제공하기 위해서는 규제 샌드박스를 통한 예외적인 특례를 권장할 것이 아니라 근본적인 규제 정비가 바람직한 해결책이 될 수 있다. 마지막으로 보험사 및 빅테크의 데이터 활용 기반 강화가 시급하다. 빅테크 플랫폼이 보험업에 진출하고 보험사의 인슈어테크가 도입되면서 보험사 및 빅테크, 그리고 제휴 사업자 등 이해당사자 간 데이터 활용에 대한 적정 규제의 필요성 높아지고 있는 것이다. 무분별한 보험데이터의 독점 및 오남용에 대해서는 엄격한 규제를 적용하되, 망분리, 금융클라우드 이용 등 금융보안 규제의 합리적 개편 방안이 시급히 마련되어야 할 것으로 보인다. 마이데이터 시행에 있어 관련 제약 요인의 해소도 시급히 해결해야 한다. 참여 사업자들 간 데이터 제공 범위나 내용에 있어 서로 차이가 큰 문제는 마이데이터 사업의 걸림돌로 작용할 것으로 보인다. 마이데이터사업의 원활한 진행을 위해서 금소법 상의 등록 없이도 맞춤형 비교 추천서비스가 가능하도록 규제 완화를 할 필요가 있다.

The Impact of Peer-to-Peer Lending on Small Business Loans

We investigate the impact of peer-to-peer lending on the small business loans originated by US depository institutions that are subject to the Community Reinvestment Act. We present a model where a borrower can choose between a traditional bank and a crowdlending platform and show that the entry of crowdlending can induce a switching effect as well as a credit expansion effect. Using the staggered entry of LendingClub across states between 2009 and 2017, we find that the platform entry reduced the small business loans originated by banks, in particular, in the low- or moderate-income tracts as well as in the distressed middle-income tracts with a high poverty rate. A conservative estimate suggests that the crowdlending entry may have reduced the aggregate lending volume to small businesses.

Online property brokerage platform and prices of second-hand houses: Evidence from Lianjia’s entry

Despite the popular emergence of online property brokerage platforms in the second-hand housing market, little is known about whether and how these platforms would influence the market, especially in terms of housing price. We thus assemble and analyze data from multiple sources about the entry of a representative Chinese platform (Lianjia.com) and local housing market for empirical validation. Our analysis found that platform entry may decrease the price of second-hand houses, and the impact would be weakened with the increase in new house price and total households. Moreover, platform entry eventually may boost the sales of second-hand houses. These notable findings offer several important contributions. First, our research is one of the first to explore the intricate impact of online property brokerage platforms on housing price. Second, our research is one of the few to study the impact of online intermediaries on the sales price of large consumer goods. Third, we further uncover some contingent factors and subsequent downstream outcome of this impact. Practically, our findings also offer important implications to practitioners and policy makers.

Investigating the impact of home-sharing on the traditional rental market

PurposeThe sharing economy has enjoyed rapid growth in recent years, and entered many traditional industries such as accommodation, transportation and lending. Although researchers in information systems and marketing have attempted to examine the impacts of the sharing economy on traditional businesses, they have not yet studied the rental housing market. Thus, this research aims to investigate the impact of the sharing economy (i.e. home-sharing) on traditional businesses (i.e. rental housing market).Design/methodology/approachThe authors assemble rich data from multiple sources about the entry of a leading Chinese home-sharing platform (i.e. Xiaozhu.com) and local housing rental price index. Then, econometric models (i.e. linear panel-level data models) are employed for empirical investigation. Instrumental variables are used to account for potential endogeneity issues. Various robustness checks are adopted to establish the consistency of the findings.FindingsOverall, the estimation results show that the entry of a home-sharing platform will decrease the local housing rental price. Moreover, this impact would be strengthened in a more developed city. Additionally, this impact would be strengthened with higher prices of new houses or second-hand houses.Originality/valueFirst, this research is one of the first to study the impact of the sharing economy (i.e. home-sharing) on traditional markets (i.e. housing rentals). Second, it contributes to the relevant literature by documenting that the impact of a platform's entry is not uniform but contingent on city and housing market characteristics. Third, practically, the findings also offer important implications for platform operators and policy makers.