NETWORK EFFECTS and MULTI-SIDED PLATFORMS (Part II) WEEK 9-10 Copyright 2019
2 Note on final exam • Three hours • Comparison to midterm − Identical layout − More questions, more material − Less rushed, in general • Clearly cumulative • Laptop recommended but not necessary • “Closed book”—just bring a clean copy of case • Case, i.e. set of articles, posted (food order/delivery platforms or online marketplaces, depending on when you are taking it)
3 Week 9 Recap
4 Week 10 Agenda • Characterize platform outcomes, e.g. did a winner take all? − Linkedin vs Google+ − Xbox v playstation − All tipped • “Is the market going to tip?” • Predict platform structure in equilibrium | market attributes • Billion dollar question: “Can we tip it towards our platform?” • Characterize optimal strategies | expected platform structure
Platform structure and competition
6 Market structure vs. platform structure • Market structure determined by # and offerings of firms • Network effects complicate the issue • Key question is who interacts with whom and with how many • Platform structure determined by both sides’ interactions
8 Platform structures Network Side 1 Users Side 1 Structure Side 2 Structure Side 2 Users Video cassette players HH WTA Movie Studios Video games Consumers Mono Mult Game Developers Credit cards Consumers Mult Mixed Merchants Short-term lodging rentals Renters Mixed Host Shopping mall Consumers Mixed Mult Stores Digital documents Readers WTA Writers
Determinants of platform structure
10 Platform structure determinants • Four environmental factors determine platform structure • Mostly beyond our control • Clearly impact incentives • Critical to consider when making strategic decisions
11 #1 Scale economies •
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- Spring '17