Multi-Sided Platforms

32 Pages Posted: 14 Jun 2016

See all articles by Andrei Hagiu

Andrei Hagiu

Boston University - Questrom School of Business

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: March 19, 2015

Abstract

We study the economic tradeoffs that drive organizations to position themselves closer to or further away from a multi-sided platform (MSP) business model, relative to three traditional alternatives: vertically integrated firms, resellers or input suppliers. These tradeoffs lead to a comprehensive discussion of the defining features of MSPs. The formal model we develop focuses on the MSP versus vertical integration choice, which we interpret in the context of professional services. A key tradeoff emerges between the need to coordinate decisions that generate spillovers across professionals (best achieved by a vertical integrated firm) and the need to both motivate unobservable effort by professionals and ensure professionals adapt their decisions to their private information (best achieved by a MSP). We show how this baseline tradeoff is impacted by the nature of contracts available to the vertically integrated firm and the MSP, and by the possibility of professionals holding pessimistic expectations when deciding whether or not to join the vertically integrated firm or MSP.

Keywords: Multi-Sided Platforms, Platforms, Two-Sided Markets, Reseller, Vertical Integration

JEL Classification: D4, L1, L5

Suggested Citation

Hagiu, Andrei and Wright, Julian, Multi-Sided Platforms (March 19, 2015). International Journal of Industrial Organization, Vol. 43, 2015, Available at SSRN: https://ssrn.com/abstract=2794582 or http://dx.doi.org/10.2139/ssrn.2794582

Andrei Hagiu (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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