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

Burcu Tan, Edward G. Anderson, Geoffrey ParkerInformation SystemsIT治理UTD24

Information Systems Research2020-02-19University of New Mexico; The University of Texas at Austin; Dartmouth CollegeDOI

Citations147

Influential3

References46

TL;DR

An analytic model is developed to explore the key tradeoffs behind investment in integration tools and how that investment interacts with pricing decisions in a two-sided market and suggests that considering integration investment can create market regimes in which the standard pricing results from the extant platform literature no longer hold.

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.

Android (operating system)Modular designSubsidyInvestment (military)Vertical integrationOrder (exchange)Business modelThird partySoftwareIntegration platformBusinessComputer science