Tencent
IE5551 Group Project
Two-sided network effect within Information Technology
1． Introduction
How is it possible that firms are willing to give away information and related products, apparently expecting neither future consumer exploitation nor tying?
1) Two-sided market:
Two sided markets, also called two-sided networks, are economic platforms having two distinct user groups that provide each other with network benefits. Two-sided networks can be found in many industries, include credit cards, search engines, operating systems and so on. And well-known companies which adapt two sided market include eBay, Facebook, Tencent, American Express and so on. (example: Consumers prefer credit cards honored by more merchants, while merchants prefer cards carried by more consumers.)
Two-sided network includes cross-side network effects and same-side network effects. They all can be positive or negative. Quite often in a two-sided network, members of at least one group exhibit a preference regarding the number of users in the other group; these are called cross-side network effects. Each group’s members may also have preferences regarding the number of users in their own group; these are called same-side network effects.
Two sided markets are useful in analyzing the competition between two parties. And it is also useful in free price strategies to attract customers from other user groups. Two-sided platforms, by playing an intermediary role, produce certain value for the both parties that are through it interconnected, and therefore those sides may both be evaluated as customers.
Competition in two-sided network industries is fierce, platform leaders can driving out weaker rivals through competition. And as a result, mature two-sided network industries are usually dominated by a handful of large platforms.
2) Example of two-sided market
Example markets include credit cards, composed of cardholders and merchants; HMOs (patients and doctors);
Two-sided network effect within Information Technology
1． Introduction
How is it possible that firms are willing to give away information and related products, apparently expecting neither future consumer exploitation nor tying?
1) Two-sided market:
Two sided markets, also called two-sided networks, are economic platforms having two distinct user groups that provide each other with network benefits. Two-sided networks can be found in many industries, include credit cards, search engines, operating systems and so on. And well-known companies which adapt two sided market include eBay, Facebook, Tencent, American Express and so on. (example: Consumers prefer credit cards honored by more merchants, while merchants prefer cards carried by more consumers.)
Two-sided network includes cross-side network effects and same-side network effects. They all can be positive or negative. Quite often in a two-sided network, members of at least one group exhibit a preference regarding the number of users in the other group; these are called cross-side network effects. Each group’s members may also have preferences regarding the number of users in their own group; these are called same-side network effects.
Two sided markets are useful in analyzing the competition between two parties. And it is also useful in free price strategies to attract customers from other user groups. Two-sided platforms, by playing an intermediary role, produce certain value for the both parties that are through it interconnected, and therefore those sides may both be evaluated as customers.
Competition in two-sided network industries is fierce, platform leaders can driving out weaker rivals through competition. And as a result, mature two-sided network industries are usually dominated by a handful of large platforms.
2) Example of two-sided market
Example markets include credit cards, composed of cardholders and merchants; HMOs (patients and doctors);