IDEAS home Printed from https://ideas.repec.org/a/bpj/rneart/v23y2024i2p65-86n1001.html
   My bibliography  Save this article

Critical Mass and Mature Equilibria for Two-Sided Platforms, and the Strength of the Externalities Between the Sides

Author

Listed:
  • ten Kate Adriaan

    (Independent Economist, Mexico City, Mexico)

  • Niels Gunnar

    (Managing Partner at Oxera, Oxford, UK)

Abstract

Critical mass is central to the development of two-sided platforms. It is the level of participation on both sides that is required to have the platform grow on its own force to a mature equilibrium. Despite this commonly understood dynamic, a formal definition of critical mass is missing in the literature on two-sided platforms, except for a proposal by Evans and Schmalensee (2010. “Failure to Launch: Critical Mass in Platform Businesses.” Review of Network Economics 9 (4)) who defined critical mass not as a single combination of platform sizes, but as a frontier in the two-dimensional space of those levels. We set out a demand model for two-sided platforms, propose a measure for the strength of the externalities between the sides and define critical mass in terms of this externality parameter. Our definition is more in line with the way critical mass is defined for one-sided networks. We also set out the conditions that must be met for the occurrence of critical mass.

Suggested Citation

  • ten Kate Adriaan & Niels Gunnar, 2024. "Critical Mass and Mature Equilibria for Two-Sided Platforms, and the Strength of the Externalities Between the Sides," Review of Network Economics, De Gruyter, vol. 23(2), pages 65-86.
  • Handle: RePEc:bpj:rneart:v:23:y:2024:i:2:p:65-86:n:1001
    DOI: 10.1515/rne-2024-0032
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/rne-2024-0032
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    File URL: https://libkey.io/10.1515/rne-2024-0032?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
    2. Geoffrey G. Parker & Marshall W. Van Alstyne, 2000. "Information Complements, Substitutes, and Strategic Product Design," William Davidson Institute Working Papers Series 299, William Davidson Institute at the University of Michigan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Demetrius Yannelis, 2002. "On access pricing with network externalities," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(2), pages 186-190, June.
    2. Hiroshi Kitamura, 2007. "Capacity Expansion in Markets with Intertemporal Consumption Externalities," Discussion Papers in Economics and Business 07-11, Osaka University, Graduate School of Economics.
    3. Mitomo, Hitoshi, 2017. "Data Network Effects: Implications for Data Business," 28th European Regional ITS Conference, Passau 2017 169484, International Telecommunications Society (ITS).
    4. Mirta B. Gordon & Jean-Pierre Nadal & Denis Phan & Viktoriya Semeshenko, 2012. "Entanglement between Demand and Supply in Markets with Bandwagon Goods," Papers 1209.1321, arXiv.org, revised Dec 2012.
    5. Yuanzhu Lu & Sougata Poddar, 2015. "Strategic Choice of Network Externality," Working Papers 2015-03, Auckland University of Technology, Department of Economics.
    6. Naixin Zhu, 2023. "Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market," Papers 2305.09479, arXiv.org.
    7. Laussel, Didier & Resende, Joana, 2014. "Dynamic price competition in aftermarkets with network effects," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 106-118.
    8. Denis Phan, 2006. "Discrete Choices under Social Influence:Generic Properties," Post-Print halshs-00105857, HAL.
    9. Keser, Claudia & Suleymanova, Irina & Wey, Christian, 2012. "Technology adoption in markets with network effects: Theory and experimental evidence," Information Economics and Policy, Elsevier, vol. 24(3), pages 262-276.
    10. Veiga, André, 2018. "A note on how to sell a network good," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 114-126.
    11. Nicholas Economides,, "undated". "How to Enhance Market Liquidity," Financial Networks _002, Economics of Networks.
    12. Paul W.J. de Bijl & Sanjeev Goyal, 2002. "Market Integration and Technological Change," Netnomics, Springer, vol. 4(1), pages 19-37, March.
    13. Vincent G. Fitzsimons, 2011. "The Impact of New Technology on Leisure Networks," Chapters, in: Samuel Cameron (ed.), Handbook on the Economics of Leisure, chapter 22, Edward Elgar Publishing.
    14. Zhang, Xiaoqun, 2013. "Income disparity and digital divide: The Internet Consumption Model and cross-country empirical research," Telecommunications Policy, Elsevier, vol. 37(6), pages 515-529.
    15. Vincent Malardé & Thierry Pénard, 2022. "The role of local network effects and spatial effects in the growth of digital platforms: Evidence from the carpooling site iDVROOM [Le rôle des effets de réseau locaux et des effets spatiaux dans ," Post-Print hal-03712336, HAL.
    16. Teodosio Pérez Amaral, 1993. "Un estudio econométrico de la demanda de tráfico telefónico particular en España, 1980-1990," Investigaciones Economicas, Fundación SEPI, vol. 17(2), pages 363-378, May.
    17. Pérez-Amaral, Teodosio & Valarezo, Angel & López, Rafael & Garín-Muñoz, Teresa & Herguera, Iñigo, 2020. "E-commerce by individuals in Spain using panel data 2008–2016," Telecommunications Policy, Elsevier, vol. 44(4).
    18. Barman, Hemanta & Dutta, Mrinal Kanti & Nath, Hiranya K., 2018. "The telecommunications divide among Indian states," Telecommunications Policy, Elsevier, vol. 42(7), pages 530-551.
    19. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    20. Rasha Allam & Hesham Dinana, 2021. "The Future of TV and Online Video Platforms: A Study on Predictors of Use and Interaction with Content in the Egyptian Evolving Telecomm, Media & Entertainment Industries," SAGE Open, , vol. 11(3), pages 21582440211, August.

    More about this item

    Keywords

    two-sided markets; network externalities; critical mass;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rneart:v:23:y:2024:i:2:p:65-86:n:1001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.