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Cited by 1,700

The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.

Two-Sided Network Effects: A Theory of Information Product Design

Open access
Parker, Geoffrey G., Van Alstyne, Marshall W.·2005·Management Science
DOI 10.1287/mnsc.1050.0400
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Abstract

How can firms profitably give away free products? This paper provides a novel answer and articulates trade-offs in a space of information product design. We introduce a formal model of two-sided network externalities based in textbook economics—a mix of Katz and Shapiro network effects, price discrimination, and product differentiation. Externality-based complements, however, exploit a different mechanism than either tying or lock-in even as they help to explain many recent strategies such as those of firms selling operating systems, Internet browsers, games, music, and video. The model presented here argues for three simple but useful results. First, even in the absence of competition, a firm can rationally invest in a product it intends to give away into perpetuity. Second, we identify distinct markets for content providers and end consumers and show that either can be a candidate for a free good. Third, product coupling across markets can increase consumer welfare even as it increases firm profits. The model also generates testable hypotheses on the size and direction of network effects while offering insights to regulators seeking to apply antitrust law to network markets.

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Metadata

Authors
Parker, G. G., & Van Alstyne, M. W.
Venue
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2005-10
Volume
51
Issue
10
Pages
1494-1504
ISSN
  • 0025-1909 (ISSN-L)
  • 1526-5501
DOI
10.1287/mnsc.1050.0400
OpenAlex
W1993428784
Cited by
1,700
References
3
FWCI
61.05
Type
journal article
Language
en
Open access
green

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