Game of Platforms: Strategic Expansion into Rival (Online) Territory

Bar-Gill, Sagit (2019) "Game of Platforms: Strategic Expansion into Rival (Online) Territory," Journal of the Association for Information Systems, 20(10), . DOI: 10.17705/1jais.00575 Available at: https://aisel.aisnet.org/jais/vol20/iss10/3

47 Pages Posted: 6 Jul 2023

See all articles by Sagit Bar-Gill

Sagit Bar-Gill

Massachusetts Institute of Technology (MIT); Tel Aviv University - Coller School of Management

Date Written: October 10, 2017

Abstract

Online platforms, such as Google, Facebook, or Amazon, are constantly expanding their activities, while increasing the overlap in their service offering. This paper asks, is expansion into rival platforms’ services profit-maximizing when users’ platform choices endogenously change with expansion? We model an expansion game between two online platforms, both incumbents in distinct service markets, providing their services for free to users, and earning ad-based revenues. Platforms decide whether or not to expand by adding the service already offered by the rival. Expansion is costly, and impacts users’ platform choice, namely, their choice of single- vs. multi-homing, which, in turn, affects platform prices and profits derived from the advertisers’ side of the market. We demonstrate that, in equilibrium, platforms may choose not to expand. Strategic "no expansion" decisions are due to the quantity and price effects of changes in the user partition resulting from expansion. We further analyze the effects of expansion-driven changes in inter-platform compatibility, expansion costs, users’ probability of ad-engagement, switching costs, and intra-platform service complementarity and quality on the optimal expansion strategy. We derive an optimal expansion rule, incorporating these considerations, to guide managerial decision making regarding expansion into a rival’s “territory.”

Keywords: Media economics, entry, online platforms, two-sided markets

JEL Classification: D43, L10, L41

Suggested Citation

Bar-Gill, Sagit, Game of Platforms: Strategic Expansion into Rival (Online) Territory (October 10, 2017). Bar-Gill, Sagit (2019) "Game of Platforms: Strategic Expansion into Rival (Online) Territory," Journal of the Association for Information Systems, 20(10), . DOI: 10.17705/1jais.00575 Available at: https://aisel.aisnet.org/jais/vol20/iss10/3, Available at SSRN: https://ssrn.com/abstract=4492054

Sagit Bar-Gill (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

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