scholarly journals Equilibrium Analysis for Platform Developers in Two-Sided Market with Backward Compatibility

Games ◽  
2018 ◽  
Vol 9 (4) ◽  
pp. 76
Author(s):  
Dohoon Kim
Keyword(s):  
Network Effects ◽  
Equilibrium Analysis ◽  
Network Effect ◽  
Relative Advantage ◽  
Stable Boundary ◽  
Backward Compatibility ◽  
Indirect Network Effects ◽  
Maximum Price ◽  
Key Factor ◽  
Upper Stage

We consider a dominant platform provider operating both legacy and new platforms that connects users with suppliers in a two-sided market context. In addition to the typical indirect network effects in the two-sided market, backward compatibility works on the new platform. Thus, users joining the new one can also enjoy the services provided by suppliers using the legacy platform. Users and suppliers are linearly differentiated between two platforms as in the Hotelling model and play a subscription game of choosing one platform at the lower level. The suppliers in the new platform may suffer from congestion, which can be alleviated by platform provider’s investment on the new one. The platform provider also determines price margins for the supplier sides. Our equilibrium (eq.) analysis in the subscription game identifies an interior eq. (coexistence of both platforms in both sides). Though the backward compatibility plays a stabilizing role for the interior eq., its stability is fragile due to the network effects. Rather, some boundary eq.’s, where at least one side tips to the legacy or the new platform, are more likely to be stable. The backward compatibility is a key factor that characterizes the stable boundary eq.’s. The upper stage game is led by the platform provider, which tries to maneuver the system toward one of the stable boundary eq.’s using price margins and investment. The platform provider prefers an all-new boundary eq. when the indirect network effect and the maximum price margin for the new platform are large; thus, it puts a significant investment in the new one. With a small indirect network effect for suppliers, however, the platform provider does not invest in the new platform and choose a separate boundary eq. where two sides split into different platforms. Whether the user side completely tips to the new one (completely separated eq.) or not (partially separated eq.) depends on the backward compatibility. The relative advantage of the all-new eq. over the separate eq.’s in terms of social welfare from both sides depends on the backward compatibility as well as the indirect network effects for the new platform.

scholarly journals Borders of Network Effects and Early Internationalization as a Latecomer Strategy

2021 ◽  
Author(s):  
Sungyong Chang ◽  
Sanghyun Park
Keyword(s):  
Network Effects ◽  
Theoretical Work ◽  
Order Effect ◽  
Global Market ◽  
Global Strategy ◽  
Network Effect ◽  
Demand Side ◽  
Early Internationalization ◽  
Indirect Network Effects ◽  
Direct Network

Scholars have examined the persistent heterogeneity of firm performance from the entry-order effect perspective. In the international business literature, this perspective has been highlighted in research on early internationalization (i.e., the born global strategy). While prior work has focused on the heterogeneity of firm characteristics and capabilities, we present a demand-side view of early internationalization by focusing on network effects. Prior theoretical work on network effects has predicted that when network effects are prominent, survival is challenging for latecomers because of the installed bases of first movers in the global market. However, we see many cases, such as the mobile instant messenger (MIM) market, where no single winner dominates the global market and where many latecomers have survived by implementing early internationalization. We build upon Brian Arthur’s model of demand-side dynamics. The findings suggest that latecomers may overcome their disadvantages by pursuing early internationalization, especially when the direct network effects (i.e., social network effects) are stronger than the indirect network effects (i.e., installed base effects). The underlying rationale is that country borders often demarcate the reach of the direct network effect, limiting the power of installed bases.

scholarly journals Business diversification and multifaceted markets

2021 ◽  
Author(s):  
Koki Arai ◽  
Shuya Hayashi
Keyword(s):  
Real Estate ◽  
Network Effects ◽  
Financial Data ◽  
Network Effect ◽  
Multiple Perspectives ◽  
Difference In Differences ◽  
The Real Estate ◽  
Indirect Network Effects ◽  
The Difference ◽  
Railroad Company

AbstractIn this paper, we examine multiple segments, conventionally analyzed from the perspective of business diversification, from multiple perspectives in a multifaceted market. Specifically, based on segmental financial data, we conduct an empirical analysis of whether increased sales in the transportation business increase the profit margin of the real estate business of a railroad company. The results show that there are two types of sidedness among many businesses. The effects of both positive and negative indirect network effects were found to exist. In addition, verification of the difference-in-differences based on the initiation event of the mutual traffic interconnection demonstrates the indirect network effect in the transportation business to a certain extent, and shows that the effect is not uniform in each business, with some businesses showing strong effects and others showing less visible effects.

Scope and Timing of Deployment

2011 ◽  
pp. 122-141
Author(s):  
Joel West ◽  
Jason Dedrick
Keyword(s):  
Network Effects ◽  
Switching Costs ◽  
Network Effect ◽  
Organizational Level ◽  
Relative Advantage ◽  
Internal Standardization ◽  
Level Variable ◽  
Purpose Computer ◽  
Special Purpose Computer ◽  
Limited Scope

Here we present a qualitative study of how organizations do (or do not) adopt a new computer server platform standard; namely, Linux using PC-compatible hardware. While discussions of Linux typically focus on its open source origins, our respondents were interested primarily in low price. Despite this relative advantage in price, incumbent standards enjoyed other advantages identified by prior theory; namely, network effects and switching costs. We show when, how, and why such incumbent advantages are overcome by a new standard. We find that Linux adoption within organizations began for uses with a comparatively limited scope of deployment, thus minimizing network effect and switching costs disadvantages. We identify four attributes of information systems that potentially limit the scope of deployment: few links of the system to organizational processes, special-purpose computer systems, new uses, and replacement of obsolete systems. We also identify an organizational level variable—internal standardization— which increases scope of deployment and, thus, the attractiveness of the incumbent standard.

COMPATIBILITY STRATEGIES FOR AN ASYMMETRIC DUOPOLY CONSIDERING NETWORK EFFECTS AND MARKET SHARES

2011 ◽  
Vol 08 (04) ◽  
pp. 615-634 ◽  
Author(s):  
FAN-CHEN TSENG ◽  
KUANG-CHENG ANDY WANG
Keyword(s):  
Price Competition ◽  
Market Failure ◽  
Network Effects ◽  
Network Effect ◽  
Second Stage ◽  
Market Shares ◽  
Key Factor ◽  
Governmental Intervention ◽  
Bertrand Price Competition ◽  
Asymmetric Duopoly

The network effect is a key factor influencing the development of e-business and technological innovation. At the same time, compatibility decisions can determine the success or failure of businesses and technologies. This study explores the compatibility strategies in the context of network effects using a two-stage game-theoretical model for a duopoly. In the first stage, two firms make their compatibility decisions, and in the second stage, two firms are engaged in Bertrand price competition. Major findings are (1) other things being fixed, two firms are more likely to be compatible with each other when they have similar market shares, (2) the compatibility decisions of firms will not be influenced by consumers' switching costs, (3) the order of their compatibility decisions will not change the resulting equilibrium, and (4) based on firms' compatibility decisions, the Bertrand price competition may still lead to market failure, necessitating governmental intervention or regulations.

Principles for sharing economy formation in the digital society

2020 ◽  
Vol 16 (5) ◽  
pp. 800-821
Author(s):  
E.V. Popov ◽  
K.A. Semyachkov
Keyword(s):  
Network Effects ◽  
Sharing Economy ◽  
Network Effect ◽  
Industrial Society ◽  
Economic Activities ◽  
Digital Platforms ◽  
Digital Society ◽  
Modern Economy ◽  
Characteristic Features ◽  
The Impact

Subject. The article addresses economic relations that are formed in various areas of economic application of digital platforms. The target of the research is the modern economy of digital platforms across different economic activities. Objectives. The aim is to systematize principles for share economy formation in the context of the digital society development. Methods. We employ general scientific methods of research. Results. The study shows that the development of digital platforms is one of the most important trends in the development of the modern economy. We classified certain characteristic features of modern digital platforms, analyzed principles for their creation. The paper emphasizes that the network effects achieved through the use of digital platforms are an important factor in the development of the share economy. The network effect describes the impact of the number of the platform users on the value created for each of them. The paper also considers differences in the organization of traditional economy companies and companies that are based on the digital platform model, reveals specifics of changes in socio-economic systems caused by the development of digital platforms, systematizes principles of the sharing economy formation in the context of the digital society development. Conclusions. The analyzed principles for sharing economy development on the basis of digital platforms can be applied to create models for the purpose of forecasting the transformation of economic activity in the post-industrial society.

scholarly journals Indirect Network Effects in New Product Growth

2007 ◽  
Author(s):  
S. Stremersch ◽  
Gerard J. Tellis ◽  
Philip Hans Franses
Keyword(s):  
Network Effects ◽  
New Product ◽  
Indirect Network Effects
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