Economics of Online Platforms
THE NEW PALGRAVE DICTIONARY OF ECONOMICS, Steven N. Durlauf, Lawrence E. Blume, eds., Online Edition, 2012
Posted: 11 Nov 2012 Last revised: 16 Mar 2013
Date Written: November 1, 2012
Following the Internet’s widespread adoption, much economic work has studied ‘online platforms’: firms that mainly interact with consumers in cyberspace. This article surveys such work, focusing on the ways in which traditional economic models have been adapted to incorporate novel aspects made relevant by the Internet. This literature can be divided roughly into two categories: broad-brush study of the competition between platforms and more fine-grained study of the ways in which users and platforms interact with one another. The former focuses on extending oligopoly theory to include ‘consumption externalities’; the latter extends auction and search theory to a world of precisely measureable actions.
Keywords: consumption externalities, economics of the internet, electronic commerce, multi-sided platforms, network effects, search engines, social networks, sponsored search auctions, two-sided markets
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