OPEN ACCESS
This paper generalizes the economic features of internet platforms and analyses their competitive strategies with the method of insulating pricing. The analysis focuses on the quantity expectations game of platforms and their price expectations game. The function of network externalities on the internet platforms has an obvious feature of two stages, so their competitive strategies have to be divided into two distinct phases. Before the critical mass stage, companies need to pursue a rapid increase of subscribers in order to survive. After the critical capacity, differentiation strategy can be implemented by platform companies which seek maximum profit by the action of network externalities.
competitive strategy, insulating pricing, internet platform, non-cooperative game
[1] Rochet, J.C. & Tirole, J., Cooperation among competitors: some economics of payment card associations. RAND Journal of Economics, 33(4), pp. 549–570, 2002. http://dx.doi.org/ 10.2307/3087474
[2] Jullien, B.C.A.B., Chicken & egg: competition among intermediation service providers. RAND Journal of Economics, 34(2), pp. 309–328, 2003. http://dx.doi.org/10.2307/1593720 [3] Hagiu, A., Pricing and commitment by two-sided platforms. RAND Journal of Economics, 37(3), pp. 720–737, 2006.
[4] Shapiro, C. & Varian, H.R., Information rules: a strategic guide to the network economy. Harvard Business Review, pp. 152–198, 1999, ISBN: 7-300-03493-4/F.1048
[5] Katz, M.L. & Shapiro, C., Network externalities, competition, and compatibility. American Economic Review, 3(75), pp. 424–440, 1985.
[6] Rochet, J. & Tirole, J., Platform competition in two-sided markets. Journal of the European Economic Association, 1(4), pp. 990–1029, 2003. http://dx.doi.org/10.1162/154247603322493212
[7] Armstrong, M., Competition in two-sided markets. RAND Journal of Economics, 37(3), pp. 668–691, 2006.
[8] Economides, N., The economics of networks. International Journal of Industrial Organization, 14(2), pp. 1–33, 1996.
[9] Rochet, J. & Tirole, J., Two-sided markets: a progress report. RAND Journal of Economics, 37(3), pp. 645–667, 2006. http://dx.doi.org/10.1111/j.1756-2171.2006.tb00036.x
[10] Weyl, E.G., A price theory of multi-sided platforms. American Economic Review, 100, pp. 1642–1742, 2010. http://dx.doi.org/10.1257/aer.100.4.1642
[11] Weyl, E.G. & White, A., Insulated platform competition. Working Paper, 2013, available at SSRN: http://dx.doi.org/10.2139/ssrn.1694317.
[12] Wright, J., The determinants of optimal interchange fees in payment systems. Journal of
Industrial Economics, 52, pp. l–26, 2004. http://dx.doi.org/10.1111/j.0022-1821.2004.00214.x
[13] Fudenberg, D. & Peysakhovich, A., Recency, records and recaps: learning and non-equilibrium behavior in a simple decision problem, Working Paper, 2014, available at SSRN: http://dx.doi .org/10.2139 /ssrn.2339862
[14] Rysman, M., The economics of two-sided markets. Journal of Economic Perspectives, 23(3), pp. 125–143, 2009. http://dx.doi.org/10.1257/jep.23.3.125
[15] Evans, D.S., Platform economics: essays on multi-sided businesses. Competition Policy International, 2011.