Network Structures and Entry into Platform Markets

42 Pages Posted: 6 Jan 2019 Last revised: 24 Feb 2019

See all articles by Feng Zhu

Feng Zhu

Harvard University - Harvard Business School

Xinxin Li

University of Connecticut - Department of Operations & Information Management

Ehsan Valavi

Harvard Business School

Marco Iansiti

Harvard Business School

Date Written: December 1, 2018

Abstract

While some platform markets exhibit strongly interconnected network structures in which a buyer is interested in purchasing services from most providers, many platform markets consist of local clusters in which a buyer is primarily interested in purchasing services from providers within the same cluster. We examine how network structures affect interactions between an incumbent platform serving multiple markets and an entrant platform seeking to enter one of these markets. We find that having more mobile buyers, which increases interconnectivity among markets, reduces the incumbent’s incentive to fight and increases the entrant’s incentive to expand. Incumbent profits increase with interconnectivity. When advertising is inexpensive and mobile buyers consume in both local markets and the markets they visit, greater interconnectivity increases the entrant’s profit, thus encouraging entry.

Keywords: network structure, clustering, platform competition, entry barrier

Suggested Citation

Zhu, Feng and Li, Xinxin and Valavi, Ehsan and Iansiti, Marco, Network Structures and Entry into Platform Markets (December 1, 2018). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 19-062; University of Connecticut School of Business Research Paper No. 19-06. Available at SSRN: https://ssrn.com/abstract=3310477 or http://dx.doi.org/10.2139/ssrn.3310477

Feng Zhu (Contact Author)

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 431
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=14938

Xinxin Li

University of Connecticut - Department of Operations & Information Management ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States
(860) 486-3062 (Phone)

Ehsan Valavi

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Marco Iansiti

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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