Failure to Launch: Critical Mass in Platform Businesses
Name
Schmalensee_Failure to launch.pdf
Size
228.31 KB
Format
Adobe PDF
Checksum (MD5)
49717d7db2e3a993090e9047a3f804db
Author(s)
Evans, David S.
Schmalensee, Richard
Date Issued
December 2010
Journal
Review of Network Economics
Publisher
Walter de Gruyter
Citation
Evans, David S., and Richard Schmalensee. âFailure to Launch: Critical Mass in Platform Businesses.â Review of Network Economics 9.4 (2010): . Web.
Version
Author's final manuscript
Abstract
Platform businesses add value by facilitating interactions between customers who are attracted in part by network externalities. Two-sided platform businesses with low costs of reversing participation status have become more important with the rise of the Internet. This essay is concerned with new businesses of this sort and the initial critical mass hurdle that they generally seem to face. In a very general model, we show how this hurdle depends on the nature of network effects, the dynamics of customer behavior, and the distribution of customer tastes. Weak, plausible assumptions about adjustment processes imply that platforms must get a sufficient number of members of both sides on board to launch successfully.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
http://dx.doi.org/10.2202/1446-9022.1256
