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Sahil Jindal
Deepak Jangid Ritika Kathuria
What it means?
The winner reaps all the benefits while loser faces extinction. Decisions for the aspiring platforms:
A) B)
Should they enter the new market at all? If yes, what should they seek to preserve proprietary control over their platform or share it with competitors?
Discussion points
Platform: Definition and key concepts
Factors influencing the success of WTA Framework to predict the platform structure
Platform Structure
Traditional markets =
Buyers
Sellers
Networked markets
Buyers
Platform
Sellers
Platform sponsor + Platform provider Platform sponsors: Act as gatekeepers and platform modifiers Platform Providers: Mediate the network users interactions
Scope of discussion
Types of networks:
A) One-sided
B) Two-sided C) Three-sided
Example: e-mail users Example: Card holders and merchants for credit cards Example: You-tube: Content consumers, content providers, advertisers
Focus on : A) Platform structure B) Competition between the platforms and not within the platforms Types of platform structures:
A) Multi-Homing : Most users use more than one platform B) Mono-Homing: Most users work with only one of the competing platforms C) Mixed-homing: Percentage-wise segregation of users
Factors
B) Multi-homing costs:
Encompasses : A) Platform-specific investments B) Out-of-pocket expenses C) Inconveniences borne by users affiliation with the platform
Can be off-set by tenure and/or volume related benefits, and by salvage value at termination of relationship Costs can be duplicated a user participates in other networks
Value: Maximum price that the focal user would pay a platform provider for the ability to interact with a potential transaction partner.
In a networked market served by a single platform a focal user should be willing to affiliate with the platform whenever Vp + I H
Vp = sum of value form access to potential partners I = value derived which is independent of network effects H = Homing cost
Network effects would be high in case of user requires: i) Liquidity ii) Novelty iii) Mobility
Platform Differentiation:
- Homogenous needs favor use of single platform - Heterogeneous needs stimulate need of multiple platforms
Assumptions I
Assumptions II
Cross-side network effects are positive in both directions and same-side network effect on both sides are either neutral or positive. Network users cannot influence platform structure.
- May not held when the user base on at least one side is highly concentrated
Outcomes
WTA Outcomes
Scenario #1
1. 2. 3.
Multi-homing costs are high on both sides At least one side uniformly exhibits a strong preference for transaction partner variety Neither side has a strong preference for differentiated platform functionality
Scenario # II
1. 2. 3.
Multi-homing costs are high on only one side That side exhibits a strong preference for transaction partner variety Neither side has a strong preference for differentiated platform functionality
Mono-Homing Outcomes
Likely to observe mono-homing on side A and multi-homing on side B when: Conditions
1. 2.
Side A has high multi-homing costs and strong preference for transaction partner variety that cannot be offered selectively Side B has low multi-homing costs and strong preference for transaction partner variety
Mixed-mode Outcomes
Strong preference for differentiated platform functionality transaction specific- and a relatively weaker preference for transaction-partner variety.
The remaining users on each side multi-home due to a stronger preference for variety.
Thank You