• Platform Classics: Two-Sided Network Effects

  • Jan 31 2025
  • Length: 13 mins
  • Podcast

Platform Classics: Two-Sided Network Effects

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  • Summary

  • Parker and Van Alstyne's seminal paper explores two-sided network effects in information markets, demonstrating how firms can strategically offer products for free by leveraging distinct markets of content providers and end consumers. Their model reveals that by understanding network externalities, companies can increase consumer welfare and firm profits simultaneously through sophisticated product coupling and pricing strategies. The research provides critical insights into how digital platforms like operating systems and internet browsers create value by balancing the needs of different user groups, effectively explaining the economic logic behind seemingly counterintuitive business models that offer core products at zero cost.
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