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Failure to Launch: Critical Mass in Platform Businesses

Author

Listed:
  • 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.

Suggested Citation

  • Evans David S. & Schmalensee Richard, 2010. "Failure to Launch: Critical Mass in Platform Businesses," Review of Network Economics, De Gruyter, vol. 9(4), pages 1-28, December.
  • Handle: RePEc:bpj:rneart:v:9:y:2010:i:4:n:1
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    References listed on IDEAS

    as
    1. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, pages 667-694.
    2. Gillett, Sharon E. & Lehr, William H. & Osorio, Carlos, 0. "Local government broadband initiatives," Telecommunications Policy, Elsevier, pages 537-558.
    3. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, January.
    4. Jamison Mark A & Sichter James, 2010. "Business Separation in Telecommunications: Lessons from the U.S. Experience," Review of Network Economics, De Gruyter, vol. 9(1), pages 1-27, February.
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    6. Jullien, Bruno & Pouyet, Jérôme & Sand-Zantman, Wilfried, 2009. "Contracting and Regulation under the Threat of Duplication," IDEI Working Papers 563, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, pages 667-694.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Evans David S. & Pirchio Alexis, 2014. "An Empirical Examination of Why Mobile Money Schemes Ignite in Some Developing Countries but Flounder in Most," Review of Network Economics, De Gruyter, pages 397-451.
    2. Lechman, Ewa, 2014. "The ‘technological take-off’ and the 'critical mass'. A trial conceptualization," MPRA Paper 59506, University Library of Munich, Germany.
    3. Andre Veiga, 2014. "Dynamic Platform Design," Working Papers 14-15, NET Institute.
    4. repec:gam:jsusta:v:9:y:2017:i:5:p:734-:d:97388 is not listed on IDEAS
    5. Kuebel, Hannes & Zarnekow, Ruediger, 2014. "The role of telecommunications operators on smart home service platforms," 25th European Regional ITS Conference, Brussels 2014 101424, International Telecommunications Society (ITS).
    6. Hagiu, Andrei & Hałaburda, Hanna, 2014. "Information and two-sided platform profits," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 25-35.
    7. Jordana VIOTTO, 2015. "Competition and Regulation of Crowdfunding Platforms: A Two-sided Market Approach," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(99), pages 33-50, 3rd quart.
    8. Gomes, Renato & Pavan, Alessandro, 2016. "Many-to-many matching and price discrimination," Theoretical Economics, Econometric Society.
    9. Gold, Alex & Hogendorn, Christiaan, 2016. "Tipping in two-sided markets with asymmetric platforms," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 85-90.
    10. Dutta, Amitava & Puvvala, Abhinay & Roy, Rahul & Seetharaman, Priya, 2017. "Technology diffusion: Shift happens — The case of iOS and Android handsets," Technological Forecasting and Social Change, Elsevier, vol. 118(C), pages 28-43.
    11. 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.
    12. 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.
    13. 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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