multi-sided market

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pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

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Airbnb, airport security, Al Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, clean water, conceptual framework, constrained optimization, continuous double auction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, helicopter parent, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, winner-take-all economy

., 22 Liu, Qihong, 128–129 Lyft car service, 173 MAD (doctrine of nuclear deterrence by mutually assured destruction), 26 mail-in-bids, for auctions, 83–84 “The Market for Lemons” (Akerlof), 44–51, 64 market frictions, 169–174 market fundamentalists, 16–17 market insights, 14–15 market makers, 107–110, 118–121 markets 18th-century book, 90–91 competitive, 35, 124–126, 172–174, 180–181 design, 133, 137–142 dysfunction of, 36, 75–77, 143 economics of platform, 107–112 equilibrium, 33 fixed-price versus auctions, 96–97 food bank system, 154–160 image problem of, 152–153 labor, 48, 64–66 lemon, 44–51, 58–59, 64, 112 multisided, 108–112, 118–124 one-sided, 108–112 in POW camps, 4, 7–13, 175–177 rules for platform, 112–117 school choice in Sweden, 151–152 selfishness in, 177–179 technology and, 169–173 trade with uninformed parties, 166–169 transformation of, 13–17 two-sided, 108–112, 118–124 See also auctions; economics; platforms Marx, Karl, 20, 23 matching problems middle school dance partners, 131–132, 134, 137–140 student to school, 138–139, 141–142, 143–149 mathematics algebraic topology, 44–45 economic theory transformed by, 15, 19–27 game theory, 136 general equilibrium model, 29, 31–34, 36–37, 40, 45, 76 kidney exchange algorithm, 163–165 models, 20, 24–25, 30 in real world economics, 35–37 Samuelson connecting economics and, 28–29 Shapley-Gale algorithm, 137–140 Matsuzaka, Daisuke, 79–81, 87–89 Maxwell, James Clark, 24 McManus, Brian, 73–75 mechanism design, 133, 134 medical residency programs, 140 merchant from Prato, 105–107 middle school dance-matching, 131–132, 134, 137–140 Milgrom, Paul, 70–71, 98, 102–103 mobile market platform, 116 modeling applied theory, 45, 50, 75–76 competition, 35, 166, 172–173 congestion pricing, 86, 94 dysfunction of, 75–77 economic, 15, 24–29 mathematical, 20, 24–25, 30 reality-based economic, 35–37, 45, 49–51, 141 models auction, 82–84 eBay, 43, 46, 48 general equilibrium, 31–34, 36–37, 40, 76 lemons, 44–51, 58–59, 64, 112 Solow, 35 See also platforms; signaling model Moldovanu, Benny, 90–91 money burning costs, 70–71 money-back guarantees, 69–71 Morals & Markets: The Development of Life Insurance in the United States (Zelizer), 153 Morgenstern, Oskar, 25–27 mortality rates, of Japanese vs German POW camps, 10–13 MS-13 gang, 67 multisided markets, 108–112, 118–124 multisided platform, 14 multiunit Vickrey auction, 93 Murphy, Frank, 9 Nasar, Sylvia, 29 Nash, John, 32 National Archives’ World War II Prisoners of War Data File, 11 network externalities, 121–124 New England Program for Kidney Exchange, 164–165 New York Department of Education, 143–144, 145, 149 Nobel Prize in Economics, 34 See also Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel noncustomers, paying, 123–124 Nordstrom’s return policy, 69–70 no-risk money-back guarantees, 69–71 normal good, 180 no-trade rule, Japanese POW camps, 10–13 nuclear deterrence, 26 Omidyar, Pierre, 39–40 one-sided markets, 108–112 online retail, 41–43, 52–55 optimized efficiency, 85–86, 133 organ sales, 160–161 organizations, sick, 142–143 out-of-town bids, for auctions, 83–84 Pareto, Vilfredo, 20, 21–22 Pareto efficiency, 22 Penny Black stamp, 82–84 Percy P.

In many of its new shapes and incarnations—the innumerable e-commerce sites, the airline ticket you bought online for your next vacation, the digital magazine subscription that substitutes for the paper ones you used to read—today’s markets are governed by the same market principles that Radford documented in 1945, just a lot bigger and faster. At the same time, these principles are getting applied in ever-broader, more novel, and more sophisticated contexts. Ever wonder where the ads come from when you perform a Google search? They appear based on principles of auction design that didn’t exist in 1945. And that smart phone in your pocket? It’s both a technological and market innovation, what economists call a multisided platform. You acquire apps—sometimes paying for them but not always—created by developers on the other side of the trade. The free apps survive by delivering messages from advertisers who sit on yet another side of the phone-as-platform. And finally the phone itself is essentially another piece of the phone “ecosystem” built around the operating system—Android or iOS or Windows—that ultimately directs traffic in this many-sided set of relationships.

The count of Champagne was, in his medieval way, a pioneer in market design. And the curious story of the merchant of Prato, his delinquent customer, and the count’s response illustrates some of the principles that make a market platform tick. As economists have focused their modeling efforts ever more on real world phenomena, leading researchers have turned their attention to platforms, bringing some much-needed clarity to the rules that dictate how these multisided markets work. As a result, we now have a deeper understanding of what makes a platform work and a set of guiding principles—many of which can be traced back to twelfth-century innovations in market design—that can help us build them better. Since platforms now encompass such significant parts of our lives, it’s important to understand the trade-offs that come with participating in them. The Economics of Platforms It’s not exactly clear when and why people started referring to economic phenomena like medieval fairs, credit cards, and internet services as platform markets.

 

pages: 371 words: 108,317

The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future by Kevin Kelly

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3D printing, A Declaration of the Independence of Cyberspace, AI winter, Airbnb, Albert Einstein, Amazon Web Services, augmented reality, bank run, barriers to entry, Baxter: Rethink Robotics, bitcoin, blockchain, book scanning, Brewster Kahle, Burning Man, cloud computing, computer age, connected car, crowdsourcing, dark matter, dematerialisation, Downton Abbey, Edward Snowden, Elon Musk, Filter Bubble, Freestyle chess, game design, Google Glasses, hive mind, Howard Rheingold, index card, indoor plumbing, industrial robot, Internet Archive, Internet of things, invention of movable type, invisible hand, Jaron Lanier, Jeff Bezos, job automation, Kevin Kelly, Kickstarter, linked data, Lyft, M-Pesa, Marshall McLuhan, means of production, megacity, Minecraft, multi-sided market, natural language processing, Netflix Prize, Network effects, new economy, Nicholas Carr, peer-to-peer lending, personalized medicine, placebo effect, planetary scale, postindustrial economy, recommendation engine, RFID, ride hailing / ride sharing, Rodney Brooks, self-driving car, sharing economy, Silicon Valley, slashdot, Snapchat, social graph, social web, software is eating the world, speech recognition, Stephen Hawking, Steven Levy, Ted Nelson, the scientific method, transport as a service, two-sided market, Uber for X, Watson beat the top human players on Jeopardy!, Whole Earth Review

Unlike traditional two-sided markets—say, a farmers’ market that enables buyers and sellers—a platform ecosystem became a multisided market. A good example of this is Facebook. The firm created some rules and protocols that formed a marketplace where independent sellers (college students) produced their own profiles, which were matched up in a marketplace with their friends. The attention of the students was sold to advertisers. Game companies sold to students. Third-party apps sold to advertisers. Third-party apps sold to other third-party apps. And so on in multiple-way matches. This ecosystem of interdependent species keeps expanding, and will keep expanding as long as Facebook can manage its rules and its own growth as a firm. The wealthiest and most disruptive organizations today are almost all multisided platforms—Apple, Microsoft, Google, and Facebook. All these giants employ third-party vendors to increase the value of their platform.

A couple of maverick startups in 2016 are trying to disrupt the current attention system, but it may take a number of tries before some of the radical new modes stick. The missing piece between this fantasy and reality is the technology to track the visits, to weed out fraud, and quantify the attention that a replicating ad gets, and then to exchange this data securely in order to make a correct payment. This is a computational job for a large multisided platform such as Google or Facebook. It would require a lot of regulation because the money would attract fraudsters and creative spammers. But once the system was up and running, advertisers would release ads to virally zip around the web. You catch one and embed it in a site. It then triggers a payment if a reader clicks on it. This new regime puts the advertisers in a unique position. Ad creators no longer control where an ad will show up.

All these giants employ third-party vendors to increase the value of their platform. All employ APIs extensively that facilitate and encourage others to play with it. Uber, Alibaba, Airbnb, PayPal, Square, WeChat, Android are the newer wildly successful multiside markets, run by a firm, that enable robust ecosystems of derivative yet interdependent products and services. Ecosystems are governed by coevolution, which is a type of biological codependence, a mixture of competition and cooperation. In true ecological fashion, supporting vendors who cooperate in one dimension may also compete in others. For instance, Amazon sells both brand-new books from publishers and, via its ecosystem of used-book stores, cheaper used versions. Used-book vendors compete with one another and with the publishers.

 

pages: 383 words: 81,118

Matchmakers: The New Economics of Multisided Platforms by David S. Evans, Richard Schmalensee

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Airbnb, big-box store, business process, cashless society, Deng Xiaoping, if you build it, they will come, Internet Archive, invention of movable type, invention of the printing press, invention of the telegraph, invention of the telephone, Jean Tirole, Lyft, M-Pesa, market friction, market microstructure, mobile money, multi-sided market, Network effects, Productivity paradox, profit maximization, purchasing power parity, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, Steve Jobs, Tim Cook: Apple, transaction costs, two-sided market, Uber for X, Victor Gruen, winner-take-all economy

Matchmakers has three parts. Part I (chapters 1–3) presents an overview of the new economics of multisided platforms and shows how this business model with ancient roots has been turbocharged by modern technologies. Part II (chapters 4–10) provides a deep dive into key concepts that matchmakers must deal with in building, igniting, and operating their businesses. Finally, part III (chapters 11–13) describes how turbocharged, multisided platforms are creating new industries, destroying old ones, and forcing existing businesses to reinvent themselves to survive. A glossary at the back of the book provides definitions for the key concepts surrounding multisided platforms. To understand the perils and promise of multisided platforms we begin by describing the arduous journey, and near-death experiences, of a matchmaker we often use.

The newspaper has to weigh the costs and benefits of the balance between ads and content in designing its newspaper. The core of this book in part II uses case studies of multisided platforms to provide a deeper understanding of the concepts that we’ve presented in this chapter. We focus on six critical issues that multisided platforms must address. The opportunity for a multisided platform ordinarily arises when frictions keep market participants from dealing with each other easily and directly. Entrepreneurs can identify opportunities for starting a matchmaker by looking for significant transaction costs that keep willing buyers and sellers apart and that a well-designed matchmaker can reduce. Multisided platforms have to secure critical mass in order to ignite. They have to solve the chicken-and-egg problem of getting both sides on board, in adequate numbers, to create value.

It just needed to recruit drivers and hire lawyers to fight regulatory battles. Users still have to get access to these foundational multisided platforms. The cost of obtaining a connection and the cost of uploading and downloading data has declined dramatically, however, making it possible for 44 percent of people on earth to have access to the Internet.20 A considerable portion of the remaining 56 percent will obtain access in the next few years as cellular networks expand and as costs come down further. Global multisided platforms such as Facebook and Google, which benefit from getting more people on board, are investing in satellite and other technologies for spreading the Internet to the poorest parts of the world. Thus, multisided platforms, powered by fixed and mobile ISPs, themselves multisided platforms, can connect billions of people and millions of companies around the globe.

 

pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

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3D printing, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business process, buy low sell high, chief data officer, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, Khan Academy, Kickstarter, Lean Startup, Lyft, market design, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, two-sided market, Uber and Lyft, Uber for X, winner-take-all economy, Zipcar

As we saw in chapter 2, the new technology-driven communities known as platform businesses are creating a vast amount of new wealth outside the firm, and these external benefits must be designed and managed fairly. Because these value-creating networks grow faster outside the firm than inside, ruling the ecosystem wisely puts a premium on not ruling it selfishly. If navigating the rules for governance is hard for one-sided platforms like the Keurig brewing system, it’s exponentially harder when platforms are multisided. After all, multisided platforms involve numerous interests that don’t always align. This makes it difficult for platform managers to ensure that various participants create value for one another, and it makes it likely that conflicts will emerge that governance rules must resolve as fairly and efficiently as possible. This is a juggling act that even giants and geniuses often get wrong. Facebook, for example, has alienated users with its privacy policies.4 LinkedIn has angered its developers by turning off their access to APIs.5 And Twitter has expropriated technologies developed by other members of its ecosystem while permitting Twitter users to harass one another.

Understanding this forces a shift in corporate governance from a narrow focus on shareholder value to a broader view of stakeholder value. Market designer and Nobel Prize-winning economist Alvin Roth described a model of governance that uses four broad levers to address market failures.19 According to Roth, a well-designed market increases the safety of the market via transparency, quality, or insurance, thereby enabling good interactions to occur. It provides thickness, which enables participants from different sides of a multisided market to find one another more easily. It minimizes congestion, which hampers successful searches when too many people participate or low quality drives out high. And it minimizes repugnant activity—which explains why platform designers forbid porn on iTunes, human organ sales on Alibaba, and child labor on Upwork. According to Roth, good governance occurs when market managers use these levers to address market failures.

Bill Gurley, “All Revenue Is Not Created Equal: Keys to the 10X Revenue Club,” Above the Crowd, May 24, 2011, http://abovethecrowd.com/2011/05/24/all-revenue-is-not-created-equal-the-keys-to-the-10x-revenue-club/. 23. Douglas MacMillan, “The Fiercest Rivalry in Tech: Uber vs. Lyft,” Wall Street Journal, August 11, 2014; C. Newton, “This is Uber’s Playbook for Sabotaging Lyft,” The Verge, August 26, 2014, http://www.theverge .com/2014/8/26/6067663/this-is-ubers-playbook-for-sabotaging-lyft. CHAPTER 11: POLICY 1. Kevin Boudreau and Andrei Hagiu, Platform Rules: Multi-Sided Platforms as Regulators (Cheltenham, UK: Edward Elgar, 2009), 163–89. 2. Malhotra and Van Alstyne, “The Dark Side of the Sharing Economy.” 3. Felix Gillette and Sheelah Kolhatkar, “Airbnb’s Battle for New York,” Businessweek, June 19, 2014, http://www.bloomberg .com/bw/articles/2014-06-19/airbnb-in-new-york-sharing-startup-fights-for-largest-market. 4. Ron Lieber, “A Liability Risk for Airbnb Hosts,” New York Times, December 6, 2014. 5.

 

pages: 270 words: 79,180

The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky

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Affordable Care Act / Obamacare, Airbnb, Al Roth, Black Swan, buy low sell high, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, Jean Tirole, Lean Startup, Lyft, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, Sand Hill Road, sharing economy, Silicon Valley, social graph, supply-chain management, TaskRabbit, The Market for Lemons, too big to fail, trade route, transaction costs, two-sided market, Uber for X, ultimatum game, Y Combinator

For the second quarter of 2014, the most recent period for which data is available, Talent Solutions revenue totaled $322 million while revenue from Premium Subscriptions was $105 million, and revenue from Marketing Solutions was $106 million. See “LinkedIn Announces Second Quarter 2014 Results,” LinkedIn press release, July 31, 2014, retrieved from http://investors.linked in.com/releasedetail.cfm?ReleaseID=863494). This is no accident: the company understands that it is operating in a multisided market, where offering low-price or even free entry to one side (in this case, job seekers) will attract plenty of high-paying participants on the other side (recruiters whose livelihood depends on finding the right job seekers). 8.Joe Light, “In Zillow-Trulia Deal, Making Room for Brokers,” Wall Street Journal, July 28, 2014. For a deeper look at the business models of the real estate sites, see Brad Stone, “Why Redfin, Zillow, and Trulia Haven’t Killed Off Real-Estate Brokers,” Bloomberg Businessweek, March 7, 2013. 9.This is the figure for the most recent year available, 2013, according to the National Association of Realtors, which reports that 9 percent of houses were listed for sale by owner.

See Dina Mayzlin, Yaniv Dover, and Judith Chevalier, “Promotional Reviews: An Empirical Investigation of Online Review Manipulation,” American Economic Review 104, no. 8: 2421–55. 17.This is a central argument of a book chapter that examines enforcement activities by middlemen as seemingly varied as the Roppongi Hills shopping center in Tokyo and the Harvard Business School. See Kevin J. Boudreau and Andrei Hagiu, “Platform Rules: Multi-Sided Platforms as Regulators,” in Annabelle Gawer (ed.), Platforms, Markets and Innovation (Northampton, MA: Edward Elgar Publishing, 2009). 18.Hongbin Cai, Ginger Zhe Jin, Chong Liu, Li-an Zhou, “Seller Reputation: From Word-of-Mouth to Centralized Feedback,” International Journal of Industrial Organization 34 (May 2014): 51–65. 19.Interview with Ginger Jin, November 20, 2013. 20.W. Scott Frame, Aruna Srinivasan, and Lynn Woosley, “The Effect of Credit Scoring on Small-Business Lending,” Journal of Money, Credit and Banking 33, no. 3 (August 2001): 813–25. 21.The Prisoner’s Dilemma, dealing with situations in which both sides have reasons to distrust the other, is probably the most common game for studying trust.

Finally, note that Georg Simmel described another middleman, one without the sinister overtones of tertius gaudens—this is Simmel’s tertius iungens (the third who joins). 20.Ron Burt, “Structural Holes and Good Ideas,” American Journal of Sociology 110, no. 2 (September 2004): 349–399. 21.Victoria Barret, “Silicon Valley Cinderella,” Forbes, March 21, 2012. 22.Ronald Burt, Structural Holes: The Social Structure of Competition (Harvard University Press, 1992), 28. 23.Burt used the word “bridge” to refer to the relationship, whereas I am using it to refer to the person. 24.Fortune Editors, “The Real Way to Build a Social Network,” Fortune, January 24, 2012. 25.Interview with Ron Burt, February 10, 2014. 26.This research is described in Ron Burt, Neighbor Networks (New York: Oxford University Press, 2010). 27.Interview with LaJuan Stoxstill-Diggs, January 31, 2014. 28.See, for example, “Maureen Orth, “Killer@Craigslist,” Vanity Fair, October 2009. 29.Buyers of classified ads saved $5 billion between 2000 and 2007 as a result of Craigslist entering the market. See Robert Seamans and Feng Zhu, “Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers,” Management Science 60, no. 2 (February 2014): 476–493. 30.He is selling it online as an e-book. See LaJuan Stoxstill-Diggs, The Craigslist Hustle (LSD Publishing, 2009). 31.Interview with Jim Angel, February 3, 2014. 32.Anil K. Kashyap, Raghuram Rajan, and Jeremy C. Stein, “Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit Taking,” The Journal of Finance 57, no. 1 (February 2002): 33–73. 33.Interview with Genevieve Thiers, January 27, 2014. 34.Libby Kane, “Entrepreneurship 101: Interview with Genevieve Thiers,” LearnVest, September 12, 2012. 35.Interview with Marc Rysman, January 31, 2014.

 

pages: 302 words: 73,581

Platform Scale: How an Emerging Business Model Helps Startups Build Large Empires With Minimum Investment by Sangeet Paul Choudary

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3D printing, Airbnb, Amazon Web Services, barriers to entry, bitcoin, blockchain, business process, Clayton Christensen, collaborative economy, crowdsourcing, cryptocurrency, data acquisition, frictionless, game design, hive mind, Internet of things, invisible hand, Kickstarter, Lean Startup, Lyft, M-Pesa, Mark Zuckerberg, means of production, multi-sided market, Network effects, new economy, Paul Graham, recommendation engine, ride hailing / ride sharing, shareholder value, sharing economy, Silicon Valley, Skype, Snapchat, social graph, social software, software as a service, software is eating the world, Spread Networks laid a new fibre optics cable between New York and Chicago, TaskRabbit, the payments system, too big to fail, transport as a service, two-sided market, Uber and Lyft, Uber for X, Wave and Pay

Accounting for currency and value capture, the following is the fully laid out platform canvas (see Figure 17f). The Platform Canvas Figure 17f PULL-FACILITATE-MATCH AND THE PLATFORM CANVAS The design of tools and services should closely align with the three roles of the platform: pull, facilitate, and match. The platform must ensure that it pulls, facilitates, and matches users on an ongoing basis and designs its tools and services to do so. MULTI-SIDED PLATFORMS WITH MULTIPLE INTERACTIONS Some platforms focus almost entirely on enabling one core interaction, but many platforms have more than one interaction. These platforms enable edge interactions around the central core interaction. The architecture of these platforms must evolve one interaction at a time. Starting with the core interaction, the platform canvas may be used to lay out the architecture of the platform.