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Platform Pricing and Investment to Drive Third-Party Value Creation in Two-Sided Networks

Burcu Tan¹; Edward G. Anderson²; Geoffrey Parker³

¹ Anderson School of Management, The University of New Mexico, Albuquerque, New Mexico 87106; · ² McCombs School of Business, University of Texas, Austin, Texas 78705 · ³ Thayer School of Engineering, Dartmouth College, Hanover, New Hampshire 03755

Many two-sided platforms, such as eBay, iOS, Android, and Twitter, invest in developer integration tools, such as modular interfaces, interactive development environments, application programming interfaces, and help desks, in order to reduce the cost and improve the functionality of third-party content developed for the platform. Although these integration tools are crucial to platform success, they are costly to create, and therefore, managers need to understand where and when to deploy them. In particular, when the necessary integration investment is high, the advice to subsidize one side of a two-sided market while charging the other may not hold. This means that integration investment should be carefully coordinated with market pricing decisions. In general, higher levels of investment by hardware/software platforms into integration become desirable when the platform (1) has access to a large pool of content providers and consumers, (2) is able to develop integration tools that are highly effective in reducing third-party development costs, and (3) operates in high-consumer value markets. However, there are nuances. For example, business to business platforms can make investments in integration to facilitate participation by both sides of the market. We find that such investments are complements, not—as one might expect—substitutes.

DOI

10.1287/isre.2019.0882

Volume

31 (1)

Pages

217-239

Language

en

Export

BibTeX

Sources

crossref