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Authors

David S. Evans

Abstract

Multi-sided platforms coordinate the demands of distinct groups of customers who need each other in some way. Dating clubs, for example, enable men and women to meet each other; magazines provide a way for advertisers to find an audience, and computer operating system vendors provide software that applications users and applications developers can use together. When devising pricing and investment strategies, multi-sided platforms must account for interactions among the demands of multiple groups of customers. In theory, the optimal price to customers on one side of the platform is not based on a markup formula such as the Lerner condition, and price does not track marginal cost. Indeed, many actual platform businesses charge one side little or nothing-shopping malls seldom charge shoppers; operating system vendors give developers many services for free; most Internet portals and free television providers do not charge viewers. Competition among platforms takes place in multi-sided markets in which seemingly distinct customer groups are connected through interdependent demand and a platform that, acting as an intermediary, internalizes the resulting indirect network externalities. Multi-sided platforms arise in many economically significant industries from media to payment systems and software; they arise in bricks and mortar industries such as shopping malls as well as information-based industries such as portals.

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