Strategic Investments for Platform Launch and Ecosystem Growth: A Dynamic Analysis

Forthcoming, Journal of Management Information Systems.

55 Pages Posted: 23 May 2023

See all articles by Edward G. Anderson

Edward G. Anderson

University of Texas at Austin - Department of Information, Risk and Operations Management

Geoffrey Parker

Dartmouth College

Burcu Tan

University of New Mexico

Date Written: March 20, 2023

Abstract

Multi-sided platforms must make decisions on both pricing and engineering investment and must continually adjust them as the platform scales over its lifecycle. Engineering investments can be allocated to features that improve a platform’s standalone value, social features to take advantage of same-side network effects, or integration tools and boundary resources to facilitate third-party content creation. Guidance in the academic or practitioner literature is not granular. Moreover, relevant normative economic models that consider externalities are rarely dynamic. Hence, there is a gap in knowledge about how to best balance tradeoffs between different strategic decisions throughout the entire platform lifecycle. To begin to address this gap, we explore normative strategies for coordinating pricing and engineering investment decisions on a continuous basis under different ecosystem conditions. We build a simulation model informed by economics and marketing theory and perform extensive sensitivity analyses on key parameters in different ecosystem scenarios over a multi-period lifecycle. We find that pricing and investment strategies must continuously change to perform optimally. In particular, strategies that are most effective at launch often differ from those that are most effective during scaling as well as those most effective at maturity. We also find that the optimal strategy depends strongly on the monetization model and market aversion to price changes. Lastly, we specifically examine four different industry segments: mobile platforms, social media, the sharing economy, and business-to-business. The results provide evidence that the trajectory of platform pricing and investment strategies should greatly differ depending on industrial context.

Keywords: Multi-sided platforms, two-sided markets, network effects, boundary resources, new product development, online integration, ecosystem, system dynamics, online platforms

JEL Classification: M15, L2, L86

Suggested Citation

Anderson, Edward G. and Parker, Geoffrey and Tan, Burcu, Strategic Investments for Platform Launch and Ecosystem Growth: A Dynamic Analysis (March 20, 2023). Forthcoming, Journal of Management Information Systems., Available at SSRN: https://ssrn.com/abstract=4450501

Edward G. Anderson

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-6394 (Phone)
512-471-3937 (Fax)

HOME PAGE: http://ed@edanderson.org

Geoffrey Parker (Contact Author)

Dartmouth College ( email )

School of Engineering
Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Burcu Tan

University of New Mexico ( email )

107 Humanitites Building
Albuquerque, NM 87131-1221
United States

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