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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 David S. Evans LECG and University College London 7 June 2007 2nd Lear Conference on the Economics of Competition Law Rome, Italy
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
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
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
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
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
The Search-Based Advertising Business Share of Search-based Advertising Revenue Share of Searches
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
iTunes-iPod Business Model Music Publishers (Protected music) Unprotected Music iTunes CDs MP3s iPod Consumers
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.
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
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
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