Slides8_Platforms

Slides8_Platforms - The Information Economy Platform...

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The Information Economy Platform Markets 1
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Platform markets 2 A platform brings together groups of users. Examples: Real world: Credit cards, HMOs, Shopping malls Technology: operating systems, video games, DVDs Online: Web search, Amazon marketplace, iTunes. Same-side network effects Negative: An Xbox developer prefers less competition. Positive: An Xbox user prefers more users. Cross-side network effects An Xbox user prefers more developers.
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Platform markets 3 Platforms differ from traditional retailers Pays for goods up-front, eliminating coordination problem. Assume platform has all bargaining power (but Intel, EA) Three-sided network YouTube: consumers, advertisers, content providers. Platforms may be competitive (DVD standard) proprietary (XBox) open (WiFi standard) Platforms may be compatible (Dell, Compaq) or incompatible (Windows, Mac).
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Monopoly Pricing 4
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5 There are 2 groups of agents, k=1,2 Let n k be population size, n k e be expected population size Demand curve for group k is p k (n k ; n 1 e ,n 2 e ). Fulfilled expectations demand is p k (n k ; n 1 ,n 2 ), where n k =n k e . Cost c(n 1 ,n 2 ) Firm chooses (n 1 ,n 2 ) to maximize profits, π = n 1 p 1 (n 1 ; n 1 ,n 2 ) + n 2 p 2 (n 2 ; n 1 ,n 2 ) - c(n 1 ,n 2 ) Ignoring problem of multiple equilibria First order condition for n 1 : 1 2 1 1 2 1 2 2 2 1 2 1 1 1 1 1 2 1 1 1 1 2 1 1 1 ) , ( ) , ; ( ) , ; ( ) , ; ( ) , ; ( n
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Slides8_Platforms - The Information Economy Platform...

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