Failure to Launch: Critical Mass in Platform Businesses
AbstractPlatform 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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Bibliographic InfoArticle provided by De Gruyter in its journal Review of Network Economics.
Volume (Year): 9 (2010)
Issue (Month): 4 (December)
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Web page: http://www.degruyter.com
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- 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.
- Maarten GOOS & Patrick VAN CAYSEELE & Bert WILLEKENS, 2011.
"Platform pricing in matching markets,"
Center for Economic Studies - Discussion papers
ces11.32, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Goos, Maarten & Van Cayseele, Patrick & Willekens, Bert, 2011. "Platform pricing in matching markets," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/328974, Katholieke Universiteit Leuven.
- 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.
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