Author(s)
Martin Campbell-Kelly, Daniel D. Garcia-Swartz and Anne Layne-Farrar
Source
The Sloan Management Review, 2007
Summary
This paper looks at competition between networks.
Policy Relevance
Evidence shows that the theory that a leading network will lack a vigorous competition is less of a concern in practice.
Main Points
- A multi-sided market is one that serves different groups of users, such as home computer users, advertisers, and retailers.
- Online services from the 1980s, like Compuserve and AOL, were multi-sided networks.
- Windows, a platform for computer users and software developers, is another multi-sided market.
- Network industries are different than “normal” industries because the value of their product to users increases if more people use the product (“network effects”).
- One fax machine is not useful, because there are no devices to get the faxes sent from it; as more people get fax machines, the more useful each machine becomes.
- Some worry that, because bigger is better for networks, competition between networks will fail. The first to get popular will attract all the consumers (“tipping”).
- The authors’ research showed that the leader’s advantage can evaporate quickly. With a good business strategy, a small newcomer network can overtake the leader.
