Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • Summer 2014
  • Article
  • Journal of Economics & Management Strategy

When Does a Platform Create Value by Limiting Choice?

By: Ramon Casadesus-Masanell and Hanna Halaburda
  • Format:Print
ShareBar

Abstract

We present a theory for why it might be rational for a platform to limit the number of applications available on it. Our model is based on the observation that even if users prefer application variety, applications often also exhibit direct network effects. When there are direct network effects, users prefer to consume the same applications to benefit from consumption complementarities. We show that the combination of preference for variety and consumption complementarities gives rise to (i) a commons problem (to better satisfy their individual preference for variety, users have an incentive to consume more applications than the number that maximizes joint utility); (ii) an equilibrium selection problem (consumption complementarities often lead to multiple equilibria, which result in different utility levels for the users); and (iii) a coordination problem (lacking perfect foresight, it is unlikely that users will end up buying the same set of applications). The analysis shows that the platform can resolve these problems and create value by limiting the number of applications available. By limiting choice, the platform may create new equilibria (including the allocation that maximizes users' utility); eliminate equilibria that give lower utility to the users; and reduce the severity of the coordination problem faced by users.

Keywords

Platform Governance; Direct Network Effects; Indirect Network Effects; Complements; Tragedy Of The Commons; Equilibrium Selection; Coordination; Foresight; Strategy; Value Creation; Digital Platforms; Balance and Stability; Decision Choices and Conditions; Consumer Behavior; Applications and Software; Network Effects

Citation

Casadesus-Masanell, Ramon, and Hanna Halaburda. "When Does a Platform Create Value by Limiting Choice?" Journal of Economics & Management Strategy 23, no. 2 (Summer 2014): 259–293.
  • SSRN
  • Find it at Harvard

About The Author

Ramon Casadesus-Masanell

Strategy
→More Publications

More from the Authors

    • November 2022
    • Faculty Research

    HBS Case Video Bosch eBike

    By: Ramon Casadesus-Masanell
    • November 2022
    • Faculty Research

    What are the lessons learned to make intrapreneurship successful in a large company

    By: Ramon Casadesus-Masanell
    • November 2022
    • Faculty Research

    What are the lessons learned from the e-bike business for other Bosch divisions

    By: Ramon Casadesus-Masanell
More from the Authors
  • HBS Case Video Bosch eBike By: Ramon Casadesus-Masanell
  • What are the lessons learned to make intrapreneurship successful in a large company By: Ramon Casadesus-Masanell
  • What are the lessons learned from the e-bike business for other Bosch divisions By: Ramon Casadesus-Masanell
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College