Dynamic Platform Competition in Two-Sided Markets

23 Pages Posted: 19 Feb 2008

See all articles by Kai Chen

Kai Chen

affiliation not provided to SSRN

Edison T. Tse

Stanford University - School of Engineering

Date Written: February, 19 2008

Abstract

This paper analyzes two-sided platform competition in a dynamic setting that accounts for cross-group network externalities, single/multi-homing, and platform differentiation. By introducing heterogeneity of users and horizontally differentiation of platforms, we find that in addition to multi-homing tendency, market segmentation is another determining factor whether or not a two-sided market is destined to be served by a single platform. In the case where more than one platform can co-exist, we examine how optimal pricing structure and optimal customer trajectory for each platform are influenced by the product/service value, cross-network effect, the price sensitivity, diffusion rate, marginal cost and initial customers in each side of the markets that the competing platforms have. The analysis provides a framework for us to develop strategy that would increase the platform's competitive advantage.

Keywords: Platform Competition, Two-Sided Markets, Dynamic Diffferential Games, Network economy, network effects,

JEL Classification: C61, C72, D43, P51

Suggested Citation

Chen, Kai and Tse, Edison T., Dynamic Platform Competition in Two-Sided Markets (February, 19 2008). Available at SSRN: https://ssrn.com/abstract=1095124 or http://dx.doi.org/10.2139/ssrn.1095124

Kai Chen

affiliation not provided to SSRN

Edison T. Tse (Contact Author)

Stanford University - School of Engineering ( email )

Stanford, CA 94305-9025
United States

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