Competing in Digital Markets: A Platform-Based Perspective

Abstract

The increasing digitization of the economy and the rapid ascent of platform-based businesses is altering not just the kind of products and services that companies produce but critically, the way they generate value and deliver it to final customers. This trend brings along a shit in the economics and the underlying nature of competition, affecting the fundamental way firms compete in digital markets. In this article, we offer a platform-based view of competition in digital markets, present three distinct types of platform markets, the key elements affecting the value of a platform-based service, and the competitive logics that shape competition in these markets. We introduce the concept of platform identity to delineate the platform’s technological and market profile that will determine the platform’s competitive identity domain; and distinguish it from platform size (which reflects the scale of its user and complementor network). We argue that each platform has a unique identity, and comparisons of rival platforms along these two strategic dimensions – platform size and platform identity – can help to understand the nature of competition in digital markets and explain some of the unique competitive dynamics that depart from mainstream competitive theory’s predictions. Our framework also helps to identify cases where the market boundaries and competitive domains get contested because of platform competition, leading to market convergence. We discuss how the proposed framework can enrich and extend existing theory on competitive dynamics to the context of digital markets and offer a foundation for future research.

Keywords: digital markets, platform competition, competitive dynamics, platform identity, winner-take-all, competitive domains, market convergence

JEL Classification: L1, L22