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Article

A Dynamic Contest Model of Platform Competition in Two-Sided Markets

1
School of Business, Lucerne University of Applied Sciences and Arts, 6002 Luzern, Switzerland
2
Institute of Sport Sciences, University of Lausanne, 1015 Lausanne, Switzerland
3
Department of Business Administration, University of Zurich, 8006 Zurich, Switzerland
*
Author to whom correspondence should be addressed.
Academic Editor: Steve Worthington
J. Theor. Appl. Electron. Commer. Res. 2021, 16(6), 2091-2109; https://doi.org/10.3390/jtaer16060117
Received: 17 June 2021 / Revised: 11 August 2021 / Accepted: 13 August 2021 / Published: 18 August 2021
This paper examines the dynamic competition between platform firms in two-sided markets with network externalities. In our model, two platforms compete with each other via a contest to dominate a certain market. If one platform wins the contest, it can serve the market for a certain duration as a monopolistic platform. Our paper shows that platform firms can compensate for cost disadvantages with network effects. A head start (e.g., technological advantage) does not guarantee future success for platform firms. Network effects and cost efficiency are decisive for future success. Interestingly, higher costs of a platform can induce higher platform profits in our dynamic model. Moreover, we find that a platform’s size and profit are not necessarily positively correlated. Our model also provides new insights with respect to the underlying causes for the emergence of market dominance. The combination of technological carry-over and network effects can explain a long-lasting dominance of a platform that benefits from a head start. The necessary preconditions for this emergence are convex costs, small network effects and high carry-over. View Full-Text
Keywords: dynamic contest; two-sided markets; network externalities; platforms dynamic contest; two-sided markets; network externalities; platforms
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MDPI and ACS Style

Grossmann, M.; Lang, M.; Dietl, H.M. A Dynamic Contest Model of Platform Competition in Two-Sided Markets. J. Theor. Appl. Electron. Commer. Res. 2021, 16, 2091-2109. https://doi.org/10.3390/jtaer16060117

AMA Style

Grossmann M, Lang M, Dietl HM. A Dynamic Contest Model of Platform Competition in Two-Sided Markets. Journal of Theoretical and Applied Electronic Commerce Research. 2021; 16(6):2091-2109. https://doi.org/10.3390/jtaer16060117

Chicago/Turabian Style

Grossmann, Martin, Markus Lang, and Helmut M. Dietl 2021. "A Dynamic Contest Model of Platform Competition in Two-Sided Markets" Journal of Theoretical and Applied Electronic Commerce Research 16, no. 6: 2091-2109. https://doi.org/10.3390/jtaer16060117

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