The double-edged sword of resolving market friction in platform markets
- with Prof. Keyvan Vakili (LBS) and Prof. Aldona Kapacinskaite (Bocconi)
Platform owners try to resolve frictions that complementors face for value creation, including those associated with their access to additional markets, by lowering their cost of expansion. Extant literature is relatively silent regarding the potential impact of complementors’ market knowledge on their performance. We argue that complementors’ knowledge of the market to which they expand not only determines their within-market performance but their overall performance as well. We study this in the context of mobile-app platforms by analyzing the effect of applications’ roll-out expansion to additional markets. We find that complementors, on average, perform much better in markets they have more knowledge about. Moreover, this effect is heterogeneous across different market categories. While the effect is negligible for generic complements, market knowledge strongly impacts the performance of context-specific applications. We also find complementors that expand to markets in which they have low market knowledge hurt their overall performance in addition to that of the expanded market. Our findings imply that platform owners’ friction resolution can be a double-edged sword: while facilitating complementors’ access to additional markets provides expanded access to both complementors and users, it can have negative spillover effects on complementors’ performance in their existing markets.
market friction; platform; value creation; market expansion; complementor performance
The Double-Edged Sword of Market Segmentation: The Search-Quality Trade-off
I study how platforms’ adjustment of market segments, by creating new and more homogenous market segments, can influence demand- and supply-side dynamics in the market. Platforms distribute their products into different segment, classifying them around similar topics. These product classifications can facilitate user search, thus improving matchmaking in platforms as one of their main functions. I argue that while market segmentation can empower matchmaking in the demand-side, it can have more nuanced effects in the supply-side in terms of complementors’ incentive to innovate: while it disincentivizes innovation in the existing segments from which the new segments emerge (source segments), it promotes innovation in the newly created segments. I test my arguments in the context of Google Play Store mobile application platform. Using the introduction of 8 new segments in the market in 2016, I find that the number of new downloads increase for applications in both the source and new segments. However, while applications in source segments experience a drop-in number of updates, applications in new segments are more likely to be updated. I discuss contributions to literature on platform governance and market competition.
platform competition; matchmaking; market segmentation; complementor innovation; mobile app industry