Design and Ownership of Two-Sided Networks: Implications for Internet Platforms
Journal of Management Information Systems, 25(2), 171-202, 2008
41 Pages Posted: 7 Mar 2019
Date Written: Fall 2008
Many Internet intermediaries operate two-sided networks, that is, they provide platforms to bring together two types of participants, or "sides," such as buyers and sellers. This paper develops a model that characterizes the intermediary’s pricing in two-sided networks, the value created by these networks, and the allocation of that value across the two sides. It extends the two-sided net-works literature by endogenizing the level of network effects as the result of re-levant investments by the intermediary, which determine the design of the net-work. It shows that under certain assumptions about the available technologies, the design of the two-sided network is highly asymmetric independent of its ownership structure. The paper provides insight into design strategies for Internet platforms, and it discusses their welfare implications.
Keywords: platforms, platform design, platform investment, platform technologies, two-sided networks, two-sided markets, network effects, networks, ownership, investment, endogenous network effects, intermediation, B2B electronic marketplaces
JEL Classification: L12, L13, D42, D43
Suggested Citation: Suggested Citation