Platform Performance Investment in the Presence of Network Externalities

• 成果类型: Article
• 署名作者: Anderson, Edward G., Jr.; Parker, Geoffrey G.; Tan, Burcu
• 署名单位: University of Texas System; University of Texas Austin; Tulane University
• 刊物名称: INFORMATION SYSTEMS RESEARCH
• ISSN/ISSBN: 1047-7047
• DOI: 10.1287/isre.2013.0505
• 发表日期: 2014
• 页码: 152-172
• 关键词: 2-sided markets; compatibility choice; PRODUCT DEVELOPMENT; COMPETITION; INNOVATION; EVOLUTION; systems; cycle; US

摘要

Managers of emerging platforms must decide what level of platform performance to invest in at each product development cycle in markets that exhibit two-sided network externalities. High performance is a selling point for consumers, but in many cases it requires developers to make large investments to participate. Abstracting from an example drawn from the video game industry, we build a strategic model to investigate the trade-off between investing in high platform performance versus reducing investment in order to facilitate third party content development. We carry out a full analysis of three distinct settings: monopoly, price-setting duopoly, and price-taking duopoly. We provide insights on the optimum investment in platform performance and demonstrate how conventional wisdom about product development may be misleading in the presence of strong cross-network externalities. In particular, we show that, contrary to the conventional wisdom about winner-take-all markets, heavily investing in the core performance of a platform does not always yield a competitive edge. We characterize the conditions under which offering a platform with lower performance but greater availability of content can be a winning strategy.