Platform Competition
Description
Technology has challenged the underlying foundations of business, and firms must evaluate and change strategies accordingly. Professor Halaburda studies the interaction of technology and economic theory, and her findings indicate that conventional wisdom and rules of thumb derived in standard economic situations provides insufficient guidance to firms engaged in the platform competition inherent in technology-based industries.
Limiting Choice to Create Value
Platforms are characterized by network effects. Studies of platform strategy indicate that because of intergroup (indirect) network effects, creating value depends on providing greater choice—more mobile applications, more online daters, more games on a console. Yet many market leaders have shown that they can create more value—and charge premium prices—by limiting choice: witness Apple, which restricts the number of applications (even of high quality) available for the iPhone, and eHarmony, whose members receive no more than seven potential dating candidates at one time. Professor Halaburda's research demonstrates the power role that intragroup (direct) network effects, play in limited-choice situations: eHarmony enables serious daters to compete against only six others; to the many gamers who prefer to play World of Warcraft together with friends, there is no utility in having many games available. Moreover, users are willing to pay premium prices because these services solve problems: ensuring that serious daters meet only like-minded candidates and coordinating the choice of games among friends.
Competition under Asymmetric Information
The adoption of a new platform—a smartphone operating system, for example—creates uncertainty about its value among both users and developers. Once they join the platform, they can assess its utility, creating asymmetry of information: users know better how much they value the platform than the developers and the platform itself, and the developers are better informed about the development costs than the users or the platform. Professor Halaburda has investigated how this imbalance in information affects profits, prices, and market efficiency—and further, whether it increases or decreases the natural advantage an incumbent firm has over a new entrant to the market. Her preliminary findings help to explain why the entrants so often introduce major new technologies to market: they have more incentive to take this risk.