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Failure to Launch: Critical Mass in Platform Businesses

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Author Info

  • Evans David S.

    (University College London and University of Chicago Law School)

  • Schmalensee Richard

    (Massachusetts Institute of Technology)

Abstract

Platform businesses add value by facilitating interactions between customers who are attracted in part by network externalities. Two-sided platform businesses with low costs of reversing participation status have become more important with the rise of the Internet. This essay is concerned with new businesses of this sort and the initial critical mass hurdle that they generally seem to face. In a very general model, we show how this hurdle depends on the nature of network effects, the dynamics of customer behavior, and the distribution of customer tastes. Weak, plausible assumptions about adjustment processes imply that platforms must get a sufficient number of members of both sides on board to launch successfully.

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File URL: http://www.degruyter.com/view/j/rne.2010.9.4/rne.2010.9.4.1256/rne.2010.9.4.1256.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Review of Network Economics.

Volume (Year): 9 (2010)
Issue (Month): 4 (December)
Pages: 1-28

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Handle: RePEc:bpj:rneart:v:9:y:2010:i:4:n:1

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Web page: http://www.degruyter.com

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Cited by:
  1. Grajek, Michał & Kretschmer, Tobias, 2012. "Identifying critical mass in the global cellular telephony market," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 496-507.
  2. Zhou, Yiyi, 2012. "Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market," MPRA Paper 42002, University Library of Munich, Germany.
  3. Hagiu, Andrei & Hałaburda, Hanna, 2014. "Information and two-sided platform profits," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 25-35.
  4. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.

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