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Competition among Multi-Sided Platforms

Competition among Multi-Sided Platforms. David S. Evans LECG and University College London. 7 June 2007 2 nd Lear Conference on the Economics of Competition Law Rome, Italy. Multi-Sided Platforms: Powerbrokers In The Global Economy. Today’s Discussion. 1.

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Competition among Multi-Sided Platforms

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  1. Competition among Multi-Sided Platforms David S. Evans LECG and University College London 7 June 2007 2nd Lear Conference on the Economics of Competition Law Rome, Italy

  2. Multi-Sided Platforms: Powerbrokers In The Global Economy

  3. Today’s Discussion 1 What Is A Multi-Sided Platform? 2 When Do Multi-Sided Platforms Compete? The Nature Of Competition 3 Search-Based Advertising 4 The Digital Music Business 5 6 The Catalyst Age

  4. What Is A Multi-Sided Platform?

  5. The Birth Of The Charge Card • Merchants paid 7% fee • Cardholders paid small fee roughlyequal to the value of the float • Profits entirely from the merchant side

  6. Catalytic Reaction For Charge Cards Card system signed up merchants to accept and consumersto use cards: a three-party system 14 restaurants and 200 consumers to start 330 restaurants and 42,000 consumers one year later

  7. What Makes A Platform Multi-Sided Reduces transactions costs between two or more groups of economic agents ► Significant indirect network effects between groups ► ► Uses pricing, design, and openness to optimize positive feedback effects

  8. When Do Multi-Sided Platforms Compete?

  9. How Many Multi-Sided Platforms Compete

  10. Core Functions Of Multi-Sided Platforms

  11. The NatureOf Competition

  12. 0 0 0 + + + 0 Competition When The Number Of Sides Vary Single-Sided Symmetric Two-Sided Three-Sided Side A Side A Side A Side A Platform0 Platform1 Platform2 Platform3 Side C Side B Side B Side B Side B

  13. Search-Based Advertising

  14. The Search-Based Advertising Business Share of Search-based Advertising Revenue Share of Searches

  15. Search Pages

  16. How Bidding Works Revenue Per Search (RPS) = Price per click * Clicks per search Price goes up with scale because a platform with more advertisers: • has greater likelihood of having advertisers who value a search highly • has more competition among advertisers for valuable searches • clicks go up with scale—platform has the right ads to deliver to searchers

  17. The DigitalMusic Business

  18. iTunes-iPod Business Model Music Publishers (Protected music) Unprotected Music iTunes CDs MP3s iPod Consumers

  19. Growth In iPod And iTunes Number of iPods shipped (millions) Number of iTunes sold (millions) Source: Apple Corporation, Form 10K and Annual Reports, various years.

  20. The Catalyst Age

  21. Three Factors Will Lead To More Catalysts The web is a convenient meeting place 1 2 It is easy and cheap to communicate 3 Software platforms power many catalysts

  22. The Catalyst Age And Competition Policy ► More dominant firms in sectors as multi-sided platforms form and grow More dominant firms as high-tech, multi-sided platforms displace low-tech ► ► More consolidations as multi-sided platforms seek demand and cost-scale economies made possible by technology

  23. Thank you! david_evans@lecg.com www.lecgcp.com Catalyst Code:The Strategies Behind The World’s Most Dynamic Companies David S. Evans and Richard Schmalensee Harvard Business School Press, May 2007 www.catalystcode.com Invisible Engines: How Software Platforms Drive Innovation and Transform Industries David S. Evans, Andrei Hagiu and Richard Schmalensee MIT Press, 2007

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