The Diffusion of Competitive Platform-Based Products with Network Effects
Abstract
:1. Introduction
2. Literature Review
2.1. Research on Network Effects
2.2. Research on Two-Sided Platforms
2.3. Research on Product Diffusion
3. The Model
3.1. Consumer Decisions
3.2. Seller Decisions
- (1)
- The sellers who has not joined any platform and who will continue to do so will gain no profit; if the sellers choose to join platform , they will gain net profits , where is the learning cost incurred from preparing to produce a compatible product or service, which is assumed to be a normally distributed random variable, .
- (2)
- A seller on platform will gain when continuing to stay on; if sellers withdraws from platform k and will not join any platform, they will gain no profit; if they join the other platform, then the net profits are .
3.3. Complex User Network Construction
- (1)
- Start with order: Construct a ring-shaped network consisting of nodes, where each node is adjacent to its neighboring nodes, , with being even. Here, the nodes represent users.
- (2)
- Randomization: Add shortcuts between randomly chosen pairs of nodes with probability .
4. Computing Settings
5. Results Analysis
5.1. Properties of Platform Diffusion with Direct and Indirect Network Effects
5.2. First-Mover Advantage—The Number of Users and Available Complementary Products
5.3. Iteration of Platforms and Consumer Heterogeneity
5.4. Effects of Switching and Learning Costs on Platform Competition
6. Conclusions and Discussion
6.1. Theoretical Implications
6.2. Practical Implications
6.3. Limitations
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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Parameter | Value | ||
---|---|---|---|
A | B | ||
N | Size of consumer population | 200 | |
M | Size of seller population | 20 | |
Nk0 | Initial install bases of users | 20 | 20 |
Mk0 | Initial install bases of users | 2 | 2 |
α1k | Strength of direct network effect | 2 | 2 |
α2k | Strength of indirect network effect | 2 | 2 |
β1 | Index of direct networks | 1.5 | |
β2 | Index of indirect network effect | 2 | |
σ | Index of CES utility | 0.5 | |
υ0k | Intrinsic value of platforms | 5 | 5 |
K | Average number of neighbors of user | 8 | |
λ | Switching costs | 0.5 | 0.5 |
pkt | Price of platforms | 15 | 15 |
γb | Adaptive expectation coefficient of users | 0.5 | |
γs | Adaptive expectation coefficient of sellers | 0.5 | |
E(Iit) | Users’ budget expectations | 10 | |
Var(Iit) | Users’ budget variance | 4 | |
c | Marginal cost of sellers | 10 | |
E(lcjt) | Sellers’ expected learning costs | 100 | |
Var(Icjt) | Variance in learning costs | 16 | |
ρuk | Expectation factors of users | 1 | 1 |
ρsk | Expectation factors of sellers | 0.1 | 0.1 |
ρ | Probability of randomly added shortcuts | 0.2 |
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Zhang, J.; Dong, L.; Ji, T. The Diffusion of Competitive Platform-Based Products with Network Effects. Sustainability 2023, 15, 8845. https://doi.org/10.3390/su15118845
Zhang J, Dong L, Ji T. The Diffusion of Competitive Platform-Based Products with Network Effects. Sustainability. 2023; 15(11):8845. https://doi.org/10.3390/su15118845
Chicago/Turabian StyleZhang, Jie, Lingfeng Dong, and Ting Ji. 2023. "The Diffusion of Competitive Platform-Based Products with Network Effects" Sustainability 15, no. 11: 8845. https://doi.org/10.3390/su15118845