Dynamics of platform competition
Subtitle: exploring the role of installed base, platform quality and consumer expectations
By: Feng Zhu, Marco Iansiti
Contributors: Iansiti, Marco, 1961-; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 08-031; Working paper (Harvard Business School. Division of Research) -- 08-031
Publisher: Division of Research, Harvard Business School
Published: 2007
Place of publication: Boston]
Language: eng
Number of pages: 48
Description: This paper seeks to answer three questions. First, which drives the success of a platform, installed base, platform quality or consumer expectations? Second, when does a monopoly emerge in a platform-based market? Finally, when is a platform-based market socially efficient? We analyze a dynamic model where an entrant with superior quality competes with an incumbent platform, and examine long-run market outcomes. We find that the answers to these questions depend critically on two parameters: the strength of indirect network effects and consumers' discount factor of future applications. In addition, contrary to the popular belief that indirect network effects protect incumbents and are the source of market inefficiency, we find that under certain conditions, indirect network effects could enhance entrants' quality advantage and market outcomes hence could be more efficient with stronger indirect network effects.
Notes: "November 2007"--Publisher's web site.

Includes bibliographical references.