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Should a new ``platform'' target a functionality-rich but complex andexpensive design or instead opt for a bare-bone but cheaper one? This is afundamental question with profound implications for the eventual success ofany platform. A general answer is, however, elusive as it involves a complextrade-off between benefits and costs. The intent of this paper is tointroduce an approach based on standard tools from the fields of marketing andeconomics, which can offer some insight into this difficult question. Wedemonstrate its applicability by developing and solving a generic model thatincorporates key interactions between platform stakeholders. The solutionconfirms that the ``optimal'' number of features a platform should offerstrongly depends on variations in cost factors. More interestingly, it revealsa high sensitivity to small relative changes in those costs. The paper'scontribution and motivation are in establishing the potential of such across-disciplinary approach for providing qualitative and quantitativeinsights into the complex question of platform design.
Platforms, two-sided markets, economics of networks
Date Posted: 02 August 2011