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http://ssrn.com/abstract=1353502
 
 

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Failure to Launch: Critical Mass in Platform Businesses


David S. Evans


University of Chicago Law School; University College London; Global Economics Group

Richard Schmalensee


Massachusetts Institute of Technology (MIT) - Sloan School of Management

September 2, 2010


Abstract:     
Platform businesses add value by facilitating interactions between customers who are attracted at least in part by network externalities. Platform businesses with low switching costs have become more important with the rise of the internet. This essay explores the sources of the initial critical mass constraint that new, potentially viable businesses of this sort generally seem to face. For two-sided platforms, we show that this constraint is two-dimensional and depends on the nature of network effects and the distribution of customer tastes. Depending on the dynamics of adjustment to equilibrium, it may pose a chicken-and-egg problem.

Number of Pages in PDF File: 33

Keywords: Platform businesses, two-sided platforms, critical mass

JEL Classification: L1, O3

working papers series


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Date posted: April 10, 2009 ; Last revised: September 5, 2010

Suggested Citation

Evans, David S. and Schmalensee, Richard, Failure to Launch: Critical Mass in Platform Businesses (September 2, 2010). Available at SSRN: http://ssrn.com/abstract=1353502 or http://dx.doi.org/10.2139/ssrn.1353502

Contact Information

David S. Evans (Contact Author)
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
University College London ( email )
London WC1E OEG
United Kingdom
Global Economics Group ( email )
1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
Richard Schmalensee
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)
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