Working Paper | HBS Working Paper Series | 2011

Multi-Sided Platforms

by Andrei Hagiu and Julian Wright

Abstract

The economics of two-sided markets or multi-sided platforms has emerged over the past decade as one of the most active areas of research in economics and strategy. The literature has constantly struggled, however, with a lack of agreement on a proper definition: for instance, some existing definitions imply that retail firms such as grocers, supermarkets and department stores are multi-sided platforms (MSPs). We propose a definition which provides a more precise notion of MSPs by requiring that they enable direct interactions between the multiple customer types which are affiliated to them. Several important implications of this new definition are derived. First, cross-group network effects are neither necessary nor sufficient for an organization to be a MSP. Second, our definition emphasizes the difference between MSPs and alternative forms of intermediation such as "re-sellers" which take control over the interactions between the various sides, or input suppliers which have only one customer group affiliated as opposed to multiple. We discuss a number of examples that illustrate the insights that can be derived by applying our definition. Third, we point to the economic considerations that determine where firms choose to position themselves on the continuum between MSPs and resellers, or MSPs and input suppliers.

Keywords: Customers; Economics; Network Effects; Multi-Sided Platforms; Two-Sided Platforms; Supply Chain; Strategy; Retail Industry;

Citation:

Hagiu, Andrei, and Julian Wright. "Multi-Sided Platforms." Harvard Business School Working Paper, No. 12-024, October 2011.