Platform economy

Definition and delimitation

Platforms are often defined according to their role as intermediaries in two-sided or multi-sided markets. According to Hagiu & Wright, a multi-sided platform mediates direct interactions between parties on multiple sides of the market ^[1]. That is, the respective parties retain “control over the key terms of the interaction” (p. 163). In addition, parties on the respective market sides are affiliated with the platform, that is, they make platform-specific investments that are required to participate in transactions with the other side. These features in turn regularly lead to indirect and reciprocal network effects, another defining characteristic of platforms: The value of the platform to parties on one side of the market usually increases the greater the number of participating parties on the other side of the market ^[2-4]. The pricing on the different market sides is thus decisive for the total number of interactions and transactions ^[3]. Platforms therefore often act as matchmakers between parties on different market sides. The characteristics mentioned above allow platforms to be distinguished from resellers and vertically integrated companies (which purchase products or services themselves as a wholesale product). In addition, there are other platform definitions which, for example, focus directly on platform ecosystems, consisting on the one hand of core components and on the other of a range of complementary goods and services (see e.g. ^[5]).

History

Platforms as multi-sided markets can also be found in the offline world. For example, newspapers can be seen as mediating intermediaries between readers and advertisers, where a larger number of readers attracts further advertisers. In the digital economy, however, and especially in the internet economy, internet platforms have acquired a prominent economic and social role. For example, the five most valuable listed companies in the world (Apple, Microsoft, Amazon, Alphabet and Facebook, according to market capitalisation, as of 31.03.2021) pursue platform business models ^{[6, 7]}.

Application and examples

Platforms exist in many forms and in different markets. Well-known digital platforms are, for example, internet search engines such as Google Search. Internet users meet website operators and advertisers on this platform. The value for internet users results in particular from the fact that they can find relevant websites with low search costs. Sorting and displaying search results is thus one of the most important tasks of a search platform. The greater the number of searchers, the greater the value to website operators and advertisers of being listed on this platform.

App stores on mobile operating systems for smartphones such as Apple iOS and Google Android are another example of digital platforms. The greater the number of users of the respective app store or operating system, the more attractive this platform becomes for app developers. The number and quality of the available apps in turn determines the benefit of the operating system for end users and is now a decisive criterion for many users when purchasing a smartphone. The majority of end users usually use only one smartphone and operating system (so-called single-homing). Many app developers, on the other hand, are active on several platforms (especially Android and iOS) (so-called multi-homing).

Electronic dating platforms such as Tinder and Parship mediate between partner seekers. The different pricing for men and women on such platforms (cf. also the classic “Ladies Night”) is often cited as an example of the effects of network effects of different degrees. Thus, it is quite possible on platforms that negative prices apply to one side, i.e. their participation is encouraged by monetary remuneration or a non-monetary incentive.

Peer-to-peer platforms or sharing platforms such as AirBnB or BlaBlaCar allow the shared use of resources. By coordinating supply and demand through digital technologies as well as quality assurance mechanisms, such digital platforms enable a more efficient use of resources such as housing or transport capacities.

Criticism and problems

Platform business models have generated and enabled numerous digital innovations. They have also made many markets more efficient by reducing transaction costs and improving coordination. It is only on the basis of the platform model that many electronic markets have become possible at all. However, with the growing economic and social importance, criticism of the position and significance of individual global platforms is also increasing. Today, many digital platforms occupy a dominant and market-dominating position in their core markets. The winner-takes-all dynamics in digital platform markets, driven by direct and indirect network effects, often lead to markets with high market concentration in which only a few or even only one company survives as a platform operator ^{[8, 9]}. In this context, it is discussed in particular whether markets can still be contested in the long term (“competition for the market”) and whether innovation can create new competitors. Further competition problems are discussed in particular for cases where a platform takes on a dual role and, in addition to its role as an intermediary itself, also offers services or content on one of the market sides. For example, Amazon is also active on Amazon Marketplace and thus competes with third-party traders in some market segments. Here, in particular the possibility of the platform to collect additional data and information about affiliated parties as well as the possible discrimination in the mediation of interactions and transactions (“biased intermediation”) are seen as potentially problematic. Besides competition problems, the special gatekeeper role for information and interactions is also discussed in view of the large (global) user base. Particularly with regard to social media platforms, questions arise here, for example, about how to deal with hate speech and misinformation as well as the influence of the platforms on the formation of political opinion.

In the European Union, two major legislative packages for the regulation of platforms are currently being discussed, which were initiated by the European Commission: The Digital Services Act and the Digital Markets Act.

Research

At bidt, research is being conducted in numerous projects on digital platforms and the platform economy:

At the University of Passau, a public lecture series on the topic of “Digital Platform Ecosystems” was held in the summer semester (SS 2021) with the participation of the junior research group Data Policies, featuring leading academics in platform research from various disciplines.

In the project ” Data Neutrality & Open Access: Coherent Economic Policies for the Digital Economy”, the junior research group Data Policies explores the special gatekeeper role of platforms in the collection of data and its impact on competition and innovation in digital markets.

In the completed project “Business models of data-driven start-ups and their positioning along the value chain”, the business models and strategies pursued by digital start-ups were investigated. It has been shown that the approach of data-driven start-ups differs from other start-ups in various ways, which has implications for founders and managers of other companies.

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