Internet Portals as Portfolios of Entry Options

42 Pages Posted: 4 Nov 2000

See all articles by Silvia Rossetto

Silvia Rossetto

University of Toulouse 1 - Toulouse School of Economics (TSE)

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Date Written: December 19, 2000

Abstract

We investigate the valuation of platform investment, such as a software operating system or an internet portal webpage. Platform investment is the creation of an innovative distribution and production infrastructure which increases access to customers; as a result it reduces entry costs in related products. Relative to conventional producers, firms built around platforms enjoy enhanced entry options in uncertain market segments, to be exercised at the optimal strategic timing. When the platform grants a strong strategic advantage, the innovator firm can optimally choose the timing of entry when its strategic gain exceeds the value of the wating option; in case of weaker advantage, the platform firm enters just before its competitor would. In a context of increased uncertainty, the relative value of platform to traditional strategies increases; the value of waiting to invest rises, but the value of platforms increases even more. In some cases, platform can reduce entry by making parallel monopoly sustainable.

Suggested Citation

Rossetto, Silvia and Perotti, Enrico C., Internet Portals as Portfolios of Entry Options (December 19, 2000). EFA 0549; AFA 2001 New Orleans Meetings. Available at SSRN: https://ssrn.com/abstract=243190 or http://dx.doi.org/10.2139/ssrn.243190

Silvia Rossetto (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Enrico C. Perotti

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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