Dynamics of platform-based markets

de Feng Zhu

Platform-based markets are prevalent in today's economy. Understanding the driver of platform success is of critical importance for platform providers. In this dissertation, I first develop a dynamic model to characterize conditions under which different factors drive the success of a platform, and then use the theoretical framework to analyze market-level data from the video game industry. I find that game players' marginal utility decreases rapidly with additional games after the number of games reaches a certain point, and quality is more influential than indirect network effects in driving the success of video game consoles. I also use individual-level data from Chinese Wikipedia to examine contributors' incentives to contribute. I take advantage of China's block of Chinese Wikipedia in mainland China in 2005 as a natural experiment to establish the causal relationship between contributors' incentives to contribute and the number of the beneficiaries of their contributions. I find that while on average contributors' incentives to contribute drop significantly after the block, the contribution levels of those contributors with small collaboration networks do not decrease after the block. In addition, these contributors join Wikipedia significantly earlier than the average contributor. The results suggest that other market factors such as altruism could be more influential than indirect network effects in encouraging user participation in the early stage of Chinese Wikipedia. The overall research casts doubt on the popular belief that indirect network effects are the primary force driving platform success and suggests that in many cases, other market forces could be dominant. Late movers could therefore take over market leaderships by exploiting these market forces.