BUS 478 Chapter Notes - Chapter Article: Side Platform, Multihoming, Diminishing Returns

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 478
• Professor: Pek- Hooi Soh

Document Summary

Platforms = products & services that bring together groups of users in 2-sided networks. Provide infrastructure & rules that facilitate 2 groups" transactions. Traditional value chain: value moves from left to right, from cost to revenue. In 2-sided networks, cost & revenue are both to the left & right b/c platform has distinct group of users on each side. Platform incurs costs in serving both groups & can collect revenue from each. Network effect = 2 groups attracted to each other. Successful platforms can enjoy increasing returns to scale. Unlike traditional businesses, where growth beyond certain point leads to diminishing returns. Value grows as platform matches demand from both sides. Platform"s value depends on # of users on other side. Competition in 2-sided network industries can be fierce. Platform leaders can leverage higher margins to invest more in r&d/lower prices, driving out weaker rivals.