Platform Rules: Multi-Sided Platforms as Regulators

Competition Policy and Antitrust and Networks, the Internet, and Cloud Computing

Article Snapshot

Author(s)

Kevin Boudreau and Andrei Hagiu

Source

HBS Working Paper, 2008

Summary

This paper looks at non-price governance rules for users set by businesses like Facebook, shopping malls or Windows.

Policy Relevance

Policy should recognize that complex new communities need rules to grow, and that private actors often benefit consumers in selecting these rules.

Main Points

  • “Multi-sided platforms” like Xbox 360, Windows or Google serve two (or more) different groups of customers, such as consumers and software developers.
    • Roppongi Hills “mini-city” in Tokyo, an upscale mall-type locale with residences, retail shops, office space, art centers & many other features, is a non-digital example.

  • Each group of customers values the multi-sided platform more as more members of the other group(s) join (e.g. consumers and developers)   This is called “indirect network effects” and is the key defining feature of multi-sided platforms. 

  • In addition to prices, platforms must set rules governing access by and interactions between all groups of customers  to prevent problems that would reduce the value of the platform to everyone.
    • For example: Atari did not block low-quality unauthorized games from its VCS 2600 system in the early 1980s, which led to the collapse of the entire videogame market and bankruptcy for Atari itself.

  • Rules set by Facebook and Roppongi Hills, among others, show how complex rules controlling access, interactions, pranks, privacy, and other features are essential to solve problems that would reduce the value of the platform service.

  • There are no signs that the platforms are regulating in a way that harms consumers.

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