upward pricing pressure in two sided markets measuring upward pricing pressure upp has recently been proposed by farrell and shapiro 2010 as an alternative screening device for horizontal mergers we extend the concept of upp to two sided markets examples of such markets are the newspaper market where the demand for advertising is related to the number of readers and the market for online search where advertising demand depends on the number of users the formulae we derive depend on four sets of diversion ratios that can either be estimated using market level demand data or elicited in surveys in an application we show that it is important to take the two sidedness of the market into account when evaluating upp

technology ecosystem governance technology platform strategies offer a novel way to orchestrate a rich portfolio of contributions made by the many independent actors who form an ecosystem of heterogeneous complementors around a stable platform core this form of organising has been successfully used in smartphone gaming commercial software and industrial sectors technology ecosystems require stability and homogeneity to leverage common investments in standard components but they also need variability and heterogeneity to meet evolving market demand although the required balance between stability and evolvability in the ecosystem has been addressed conceptually in the literature we have less understanding of its underlying mechanics or appropriate governance through an extensive case study of a business software ecosystem consisting of a major multinational manufacturer of enterprise resource planning software at the core and a heterogeneous system of independent implementation partners and solution developers on the periphery o

will dynamic pricing outperform theoretical analysis and empirical evidence from o2o on demand food service market abstract this study attempts to identify the pricing strategy of three most commonly used on demand food service platforms in china based on detailed information of more than 240 000 orders and further evaluates the impact of pricing strategy on platform performance we find that some platforms adopt dynamic pricing strategies while other platforms adopt static pricing strategies considering the unique structure of the o2o on demand food service market in china we develop a dyadic two sided market theory and demonstrate that compared with static pricing strategies dynamic pricing strategies perform better consistent with our theory our empirical analysis also suggests that platforms adopting dynamic pricing strategies have a significantly higher level of demand compared with platforms adopting static strategies in addition our results indicate the importance of delivery speed red envelopes and ratings in promoting demand

price coherence and excessive intermediation suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary s technology we develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates with this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary we show that this leads to inflated retail prices excessive adoption of the intermediaries services over investment in benefits to buyers and a reduction in consumer surplus and sometimes welfare competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise we discuss applications to payment card systems travel reservation systems rebate services and various other intermediaries jel codes d40 l11 l14 l42

the economics of two sided markets at a local best buy a child places a new sony playstation 3 on the cashier s counter while the parents dig out their visa card the gaming system and the payment card may appear to have little connection other than this purchase however these two items share an important characteristic that is generating a series of economic insights and has important implications for strategic decision making and economic policymaking both video game systems and payment cards are examples of two sided markets broadly speaking a two sided market is one in which 1 two sets of agents interact through an intermediary or platform and 2 the decisions of each set of agents affects the outcomes of the other set of agents typically through an externality in the case of a video game system the intermediary is the console producer sony in the scenario above while the two sets of agents are consumers and video game developers neither consumers nor game developers will be interested in the playstation if the other party is not similarly a successful payment card requires both consumer usage and merchant acceptance where both consumers and merchants value each others participation many more products fit into this paradigm such as search engines newspapers and almost any advertisersupported media examples in which consumers often negatively value rather than positively value the participation of the other side as well as most software or title based operating systems and consumer electronics malls which seek retailers and consumers convention organizers which seek buyers and sellers dating services which seek men and women and the journal of economic perspectives which seeks content and readership all experience the economics of two sided markets the multi sided nature of many internet and high technology markets as well as

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

first party content and coordination in two sided markets the strategic use of first party content by two sided platforms is driven by two key factors the nature of buyer and seller expectations favorable versus unfavorable and the nature of the relationship between first party content and third party content complements or substitutes platforms facing unfavorable expectations face an additional constraint their prices and first party content investment need to be such that low zero participation equilibria are eliminated this additional constraint typically leads them to invest more less in first party content relative to platforms facing favorable expectations when first and third party content are substitutes complements these results hold with both simultaneous and sequential entry of the two sides with two competing platforms incumbent facing favorable expectations and entrant facing unfavorable expectations and multi homing on one side of the market the incumbent always invests weakly more in first party content relative to the case in which it is a monopolist this paper was accepted by bruno cassiman business strategy

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

information goods vs industrial goods cost structure and competition we study markets for information goods and find that they differ significantly from markets for traditional industrial goods markets for information goods in which products are vertically differentiated lack the segmentation inherent in markets for industrial goods as a result a monopoly will offer only a single product competition leads to highly concentrated information good markets with the leading firm behaving almost like a monopoly even with free entry and without network effects we study how the structure of the firms cost functions drives our results this paper was accepted by barrie r nault information systems

cross sided liquidity externalities we study the empirical relevance of the participation externality between liquidity suppliers makers and demanders takers i e whether liquidity demand attracts or reduces liquidity supply and vice versa we use exogenous shocks to exchange fees and technology as experiments to identify cross sided complementarities between liquidity suppliers and demanders in the u s equity market we find that the externality is large and positive on average however the externality is negative in periods of high adverse selection we quantify the economic significance of the externality by evaluating an exchange s revenue after a fee change the internet appendix is available at https doi org 10 1287 mnsc 2016 2658 this paper was accepted by lauren cohen finance

competing by restricting choice the case of search platforms we show that a two sided matching platform can successfully compete by limiting the number of choices it offers to its customers while charging higher prices than platforms with unrestricted choice we develop a stylized model of online dating where agents with different outside options match based on how much they like each other starting from these microfoundations we derive the strength and direction of indirect network effects and show that increasing the number of potential matches has a positive effect due to larger choice but also a negative effect due to competition between agents on the same side agents resolve the trade off between these competing effects differently depending on their outside options for agents with high outside options the choice effect is stronger than the competition effect leading them to prefer an unrestricted choice platform the opposite is the case for agents with low outside options who then have higher willingness to pay for a platform restricting choice as

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

network externality an uncommon tragedy economists have defined network externality and have examined putative inframarginal market failures associated with it this paper distinguishes between network effects and network externalities where the latter are market failures the authors argue that while network effects are important network externalities are theoretically fragile and empirically undocumented some network externalities are merely pecuniary network ownership or transactions among network participants can internalize some network effects the type of market failure that has been associated with these externalities is a transition problem that has little to do with externality

global platforms and ecosystems implications for international business theories the emergence of digital platforms and ecosystems dpe as a venue for value creation and capture for multinational enterprises holds considerable implications for the theory and practice of international business in this paper we articulate these implications by considering the dual perspectives of cross border platforms and ecosystems as a venue for multifaceted innovation and as multisided marketplace and focusing on three overarching themes at the intersection of dpes and international business that is dpes as affording new ways of internationalization as facilitating new ways of building knowledge and relationships and as enabling new ways of creating and delivering value to global customers we explain specific dpe related concepts and constructs that underlie these themes and discuss how they could be incorporated into existing ib theories in ways that would enhance their richness and continued relevance as well as their ability to better predict a multitude of emerging ib phenomena

time varying structural vector autoregressions and monetary policy a corrigendum this note shows how to apply the procedure of kim et al 1998 to the estimation of var dsge factor and unobserved components models with stochastic volatility in particular it revisits the estimation algorithm of the time varying var model of primiceri 2005 the main difference of the new algorithm is the ordering of the various mcmc steps with each individual step remaining the same

bertrand competition under network externalities abstract two firms engage in price competition to attract buyers located on a network the value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good when the size of externalities increases linearly with the number of adoptions we identify the set of pricing strategies that are consistent with an equilibrium in which one of the firms monopolizes the market the set includes marginal cost mc pricing as well as bipartition pricing which offers discounts to some buyers and charges markups to others we show that mc pricing fails to be an equilibrium under non linear externalities in a general network but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity the analysis is applied to platform competition in a two sided market under local and approximately linear externalities

firm strategies in the mid tail of platform based retailing while millions of products are sold on its retail platform amazon com itself stocks and sells only a very small fraction of them most of these products are sold by third party sellers who pay amazon a fee for each unit sold empirical evidence clearly suggests that amazon tends to sell high demand products and leave long tail products for independent sellers to offer we investigate how a platform owner such as amazon facing ex ante demand uncertainty may strategically learn from these sellers early sales which of the mid tail products are worthwhile for its direct selling and which are best left for others to sell the platform owner s cherry picking of the successful products however gives an independent seller the incentive to mask any high demand by lowering his sales with a reduced service level unobserved by the platform owner we analyze this strategic interaction between a platform owner and an independent seller using a game theoretic model with two types of sellers one with high demand and one with low demand we show that it may not always be optimal for the platform owner to identify the seller s demand interestingly the platform owner may be worse off by retaining its option to sell the independent seller s product whereas both types of sellers may benefit from the platform owner s threat of entry the platform owner s entry option may reduce consumer surplus in the early period although it increases consumer surplus in the later period we also investigate how consumer reviews influence the market outcome

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

exploring the trade off between immediate gratification and delayed network externalities in the consumption of information goods abstract our motivation for this paper originates from recent advances in consumption and payment technologies available for mobile commerce ubiquitous computing is enabling consumers worldwide to reach digital content and services whenever and wherever they request it this capability further fuels impatience in consumption of such information goods we model such consumer behavior using a hyperbolic discounting approach a subset of these products especially software also inherit delayed network externalities as part of their consumption characteristics this builds a tension between decision to consume now or to expedite consumption we build a stylized model to assess the impact of immediate gratification on the profit maximizing behavior of a monopolist firm which produces an information good with network externalities we find that serving impatient consumers is always profitable for a monopolist for lower levels of network externalities the monopolist can increase first period and decrease second period prices in equilibrium as network externalities effect increases prices converge to the traditional market with exponential discounters levels

internalization theory for the digital economy we study the internationalization of digital service multinational enterprises smncs focusing on how digitalization alters internalization theory s assumptions about the nature of firm specific assets fsas and the theory s predictions about governance choices in cross border transactions we invoke simon s proc am philos soc 106 6 467 482 1962 near decomposability concept to explain how digitalization enables two distinct types of fsas technology and human capital applying the ideas of modularity and skill complexity we further distinguish between core versus peripheral technology fsas and between generic versus advanced human capital fsas building on the transferability and appropriability of these strategic assets we theorize on the fsas internalization propensity in the digital age we propose that with rising digitalization the network plays a dual role as a governance mode and as a strategic resource integrating insights from network economics particularly increasing returns to scale we propose that network advantages on emerge as a distinct strategic resource that merits separate investigation from the traditional asset based oa and transaction based ot advantages

the economics of networks a survey of the empirical literature network effects the increase in value of consuming a product if many other consumers use the same product are a feature of many markets and in particular of many high technology products this paper surveys the burgeoning empirical literature that has developed especially during the last years after theoretical work dominated the earlier years of research in this area newer research has combined theoretical models with empirical studies and applied work with direct implications for public policy marketing and company strategies furthermore insights from the study of social networks have been applied to analyse how consumers interact with each other the paper argues that a closer analysis of the network structure of consumer interaction promises fruitful future research avenues and advances in our understanding of how network effects operate copyright 2009 blackwell publishing ltd

the lineages of the entrepreneurial ecosystem approach in its most abstract sense an ecosystem is a biotic community encompassing its physical environment and all the interactions possible in the complex of living and nonliving components economics has always been about systems that explain differential output and outcomes however economics has generally ignored the role of entrepreneurship in economic systems just as entrepreneurship studies have largely overlooked the role of systems in explaining the prevalence and performance of entrepreneurship the entrepreneurial ecosystem approach has the promise to correct these shortcomings its two dominant lineages are the regional development literature and the strategy literature both lineages share common roots in ecological systems thinking providing fresh insights into the interdependence of actors in a particular community to create new value but studies of both regional development and strategic management have largely ignored the role of entrepreneurs in new value creation in this paper we will outline contributions to the entrepreneurial ecosystem approach and conclude with a promising new line of research to our understanding of the emergence growth and context of start ups that have achieved great impact by developing new platforms

two sided markets a progress report the paper provides a road map to the burgeoning literature on two sided markets and presents new results it identifies two sided markets with markets in which the structure and not only the level of prices charged by platforms matters the failure of the coase theorem is necessary but not sufficient for two sidedness the paper builds a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality and obtains new results on the mix of membership and usage charges when price setting or bargaining determine payments between end users

marketplace or reseller intermediaries can choose between functioning as a marketplace in which suppliers sell their products directly to buyers or as a reseller by purchasing products from suppliers and selling them to buyers we model this as a decision between whether control rights over a noncontractible decision variable the choice of some marketing activity are better held by suppliers the marketplace mode or by the intermediary the reseller mode whether the marketplace or the reseller mode is preferred depends on whether independent suppliers or the intermediary have more important information relevant to the optimal tailoring of marketing activities for each specific product we show that this trade off is shifted toward the reseller mode when marketing activities create spillovers across products and when network effects lead to unfavorable expectations about supplier participation if the reseller has a variable cost advantage respectively disadvantage relative to the marketplace then the trade off is shifted toward the marketplace for long tail respectively short tail products we thus provide a theory of which products an intermediary should offer in each mode we also provide some empirical evidence that supports our main results data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 2042 this paper was accepted by bruno cassiman business strategy

two sided network effects a theory of information product design how can firms profitably give away free products this paper provides a novel answer and articulates trade offs in a space of information product design we introduce a formal model of two sided network externalities based in textbook economics a mix of katz and shapiro network effects price discrimination and product differentiation externality based complements however exploit a different mechanism than either tying or lock in even as they help to explain many recent strategies such as those of firms selling operating systems internet browsers games music and video the model presented here argues for three simple but useful results first even in the absence of competition a firm can rationally invest in a product it intends to give away into perpetuity second we identify distinct markets for content providers and end consumers and show that either can be a candidate for a free good third product coupling across markets can increase consumer welfare even as it increases firm profits the model also generates testable hypotheses on the size and direction of network effects while offering insights to regulators seeking to apply antitrust law to network markets

search diversion and platform competition abstract platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products e g advertising we show that competition between platforms leads to lower equilibrium levels of search diversion relative to a monopoly platform when the intensity of competition is high on the other hand if there is only mild competition then competing platforms induce more search diversion relative to a platform monopolist when platforms charge consumers fixed access fees all equilibrium levels of search diversion under platform competition are equal to the monopoly level irrespective of the nature of competition furthermore relative to platforms that cannot charge such fees platforms that charge positive negative access fees to consumers have weaker stronger incentives to divert search

a graphical analysis of bundling by comparing the demand for a bundle and the vertical sum of the demands for its components this article analyzes the profitability and welfare consequences of bundling if it does not lower costs bundling tends to be profitable when reservation values are negatively correlated and high relative to costs if bundling lowers costs and costs are high relative to average reservation values positively correlated reservation values increase the incentive to bundle bundling and charging a price equal to the sum of the components prices lowers consumer surplus bundling can however increase consumer surplus when it results in lower prices copyright 1995 by university of chicago press

presidential address debt and money financial constraints and sovereign finance economic analyses of corporate finance money and sovereign debt are largely considered separately i introduce a novel corporate finance framing of sovereign finance based on the analogy between fiat liabilities for sovereigns and equity for corporations the analysis focuses on financial constraints at the country level making explicit the trade offs involved in relying on domestic versus foreign currency debt to finance investments or government expenditures this framing provides new insights into issues ranging from the costs and benefits of inflation optimal foreign exchange reserves and sovereign debt restructuring

platform pricing redux platforms such as airbnb amazon apple ios ebay microsoft windows and uber are ubiquitous the two sided nature of platform markets however requires a reconsideration of the conditions for profit maximization and understanding of how platforms operate profit maximization in two sided markets is characterized as an intuitive extension of the inverse elasticity pricing rule lerner index this is further expressed in terms of the participants primitives users reservation values and the platform s marginal cost differences between one and two sided markets are demonstrated and discussed

mechanism and network design with private negative externalities a revenue maximizing monopolist is selling a single indivisible good to buyers who face a loss if any of its rival buyers obtain it the rivalry is modeled through a network an arc between a pair of buyers indicates that a buyer considers another buyer its rival and the magnitude of the loss is the private information of each buyer this loss exposure due to competitive considerations can be viewed as a negative externality first using a myersonian approach we derive the monopolist s optimal mechanism for any given network second we show that revenues depend on the network structure thus in applications where it is possible the monopolist might consider designing not only the mechanism but also the network if not fully at least partially third we provide and fully describe the solution to the monopolist s market design problem that is the joint network and mechanism design problem specifically despite the nonmonotone impact of additional competition on the monopolist s revenues we deter