Some Empirical Aspects of Multi-sided Platform Industries

Abstract

Multi-sided platform markets have two or more different groups of customers that businesses have to get and keep on board to succeed. These industries range from dating clubs (men and women), to video game consoles (game developers and users), to payment cards (cardholders and merchants), to operating system software (application developers and users). They include some of the most important industries in the economy. A survey of businesses in these industries shows that multi-sided platform businesses devise entry strategies to get multiple sides of the market on board and devise pricing, product, and other competitive strategies to keep multiple customer groups on a common platform that internalizes externalities across members of these groups. IntroductionMulti-sided platforms coordinate the demand of distinct groups of customers who need each other in some way. Dating clubs, for example, enable men and women to meet each other; yellow pages provide a way for buyers and sellers to find each other; and computer operating system vendors provide software that applications users, applications developers, and hardware providers can use together. When devising pricing and investment strategies, multi-sided platforms must account for interactions between the demands of multiple groups of customers. In theory, the optimal price to customers on one side of the platform is not based on a markup formula such as that given by the Lerner condition, and price does not track marginal cost. Competition among platforms takes place when seemingly distinct customer groups are connected through interdependent demand and a platform that, acting as an intermediary, internalizes the resulting indirect network externalities (Rochet and Tirole, 2003). Platforms are central to many key industries including computer games, information technology, many internet-based industries, media, mobile telephony and other telecommunications industries, and payment systems.

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