| The theory of two-sided markets is a branch of industry economics and mainly focuses on intermediary platform facing two groups of consumers with inter-group network externalities and economic behavior between two groups of consumers. Therefore, with the same research content as the traditional industrial organization theory, pricing is one of the core issues of the existing two-sided market theory, including the impact on pricing behavior and structure, from price elasticity of demand, charging methods and network externalities, etc. The research on the competition of two-sided markets constitutes the second major area of the existing theory of two-sided markets, which includes user homing, differrentiation, integration mergers, tying, conspiracy, advertising strategies, etc. And public policy is the third research area of the existing theory of two-sided markets. The study of these three aspects mentioned above should be more mature and the relevant literature is relatively rich, too. However, the research object of the theory of two-sided markets has different characteristics from that of other traditional industry organization theories. The study of the theory of two-sided markets is often associated with the platform industry. Naturally, this will involve the openness of platforms.The openness of platform firms includes two meanings. The first is the choice of the number of sides:a potential platform firm must choose whether to be one-sided, two-sided, or multi-sided. The second is how to get along with the competing platforms: incompatibility, compatibility, or some sort of integration. Therefore, this paper tries to make researches into the openness of platform in vertical and horizontal directions. In the vertical direction, this paper mainly analyses the way a platform chooses the number of edges:one-sided markets, two-sided markets or three-sided (multi-sided) markets. In the horizontal direction, this paper mainly analyzes the way two competing platforms get along with each other:either compatibility or incompatibility with multihoming or incompatibility without multihoming on both side users of the platform. Based on this analysis method, this paper is divided into seven chapters, in addition to the introduction part, the rest of it proceeds as follows:Chapter two mainly includes the literature review and the analysis framework of openness of the platform firms. As for the literature review, firstly, the existing research literatures on the two-sided market are roughly classified into three fields, that is, pricing strategies of two-sided markets, competitions and public policies in two-sided markets. Secondly, the comments are made upon the definition of two-sided markets, the establishing conditions of two-sided markets, and the characteristics and classification of two-sided markets. And then, the comments are made upon the definition of openness, the motives of choice for open or closed straategy of the platform firms, the types of openness and the effects of openness of platform firms. Furthermore, the analysis framework of openness of platforms is proposed on the basis of the literature review.Chapter three mainly analyses how the monopoly platform chooses the number of sides in the vertical direction. According to the characteristics of the market structure, if there is only one platform in the market, it will be called monopoly platform. The monopoly platform confronts the strategy choice of the number of sides. It can choose to be a business mode of traditional one-sided market or a business mode of the two-sided market. Therefore, this chapter mainly analyses the number of sides chosen by a monopoly platform. First, this chapter compares the characteristics of both platform modes. Then, this chapter makes equilibrium analysis through the establishment of mathematical models. Finally, this chapter comes to the following conclusions:The choice of the number of the sides of the platform is affected by the joint action of scale economic degree of the platform sale activities and positive inter-group network externalities brought to merchants by consumers and negative intra-group network externalities among merchants.The one-sided market mode will be preferred to the two-sided market mode when the positive inter-group network externality effects, which are brought to merchants by consumers and lost by all merchants, are exceeded by the superimposing effects of the cost saved by the scale economies of the sale activities and the stronger negative intra-group network externalities among merchants.The two-sided market mode will be preferred to the one-sided market mode, when there is larger positive inter-group network externality parameter between consumers and merchants and smaller negative intra-group network externality parameter among merchants and not scale economic effect of the sale activities.Taking into account the probability of unfavorable merchant expectations, the platform prefers to choose one-sided market mode in the early stages of business development. Once the user number access to the platform reaches a certain critical point and the"chicken-and-egg" problem faced by the two-sided market platform is solved and unfavorable merchant expectations are eliminated, the platform will prefer the two-sided market mode.Chapter four mainly analyses how competitive platforms choose the number of sides in the vertical direction. According to the characteristics of the market structure, if there are more than one platform in the market, they will be called competitive platforms. Competitive platforms equally have to make the strategy choice of the number of sides. Taking as an example the duopoly market structure where there only are two platforms, the two platforms may choose to be one-sided market modes together, or they may also choose to be two-sided market modes together, or it is also possible for one to choose to be one-sided market mode and the other to choose to be two-sided market mode. Therefore, this chapter mainly analyzes how the competitive platforms make the strategy choice of the number of sides. First, this chapter summarizes the strategy combination which the competitive platforms may have. Then, it makes equilibrium analysis through the establishment of mathematical models. Finally, it comes to the following conclusions:The two platforms will choose to be two-sided market modes if there is a large enough gap between the positive inter-group network externality effects brought to the merchants by the consumers and to the consumers by the merchants. But the two platforms will be confronted with the Prisoner’s Dilemma problem when the value of the positive inter-group network externality brought to the consumers by the merchants is far greater than the value of the positive inter-group network externality brought to the merchants by the consumers. The two platforms will choose to be the one-sided market modes if the gap is small enough between them. If there are some gaps but the gap isn’t large enough between them, there may be two equilibrium outcomes, that is, one platform chooses to be one-sided market mode while the other chooses to be two-sided market mode and two platforms choose to be one-sided market modes together. This concretely depends on the size of the negative intra-group network externatity parameters among merchants and of the differentiation parameters of the platform’s products or services.Chapter five mainly makes the empirical analysis of the number choice of platforms’ sides in the vertical direction. Although the use of mathematical models makes the analysis have more tight and scientific merit, it is undeniable that this tightness and science must be based on stringent assumption conditions. If the assumption conditions have changed, it may also change the conclusions and even come to the opposite conclusion. In short, there is always a gap between the abstract mathematical models and the complexity of economic phenomena. In addition, there have been some economic phenomena which can not be analyzed by the model. For example, some platforms don’t extremely choose to be one-sided market modes or to be two-sided market modes, which may be a mixture of two modes coexistence. Another example, many platforms may also choose to be three-sided market business modes. Therefore, this chapter mainly makes empirical analysis as a complement to the use of a mathematical model analysis.First, this chapter analyses the choice of one-sided market modes. For some platforms, they originally can choose to be two-sided market even three-sided market modes, but in the end they choose to be one-sided market mode. The reason is mainly that the platforms need overcome the "chicken-and-egg" problem which the platforms uniquely have in early stage of development. For this reason, these platforms take staging strategy of constructing two-sided (multi-sided) platforms. That is, in the first stage of development the platforms build a one-sided market mode through a manner similar to vertical integration, and after convening a sufficient number of users, the platform gradually transform into the two-sided (multi-sided) market mode.Secondly, this chapter analyses the situation that one-sided market mode and two-sided market mode coexist in one. In reality some platforms often contain one-sided market and two-sided market in their business modes. The reason is that both modes have advantages and disadvantages respectively, and their advantages don’t mutually exclude but can form a complementary relationship. Therefore, in order to take full advantage of these two modes, some platforms usually utilize two modes simultaneously.Finally, this chapter analyses the choice of the platform between two-sided market and three-sided market modes. Although some platforms may choose to be one-sided market modes or two-sided market modes, there are also some platforms that can only choose to be two-sided market modes, however, there are some platforms that can make a choice among either one-side or two-sided or even three-sided modes. These platforms which have a variety of choice opportunity are the operating system platforms. Owing to their own characteristics of the operating system platforms, their function must have the common support of hardware and application software. If the operating system platforms don’t choose to be one-sided market mode by way of integration, they must make a choice between two-sided market mode and three-sided market mode. In order to obtain the network externality value of operating system platforms, they usually choose to be two-sided market modes or three-sided market modes in the mature stage. And because two-sided market mode and three-sided market mode have advantages and disadvantages respectively, it is common that both modes coexist in the market.Chapter six mainly analyses the platforms’ openness in the horizontal direction. The horizontal direction openness are three relations that may exist in competing platforms. Through the establishment of models, this chapter firstly analyses the situation of incompatibility without multihoming between the two platforms. Secondly, this chapter analyses the situation of incompatibility with multihoming between the two platforms. And it also re-analyses the situation of compatibility between the two platforms. Finally, it statically compares the equilibrium outcome of these three cases and draws the conclusions as follow:When the cost of reaching compatibility between both two-sided platforms isn’t too high and the effects of positive inter-group network externalities on both sides of the platform are bigger, both platforms prefer compatibility. When the cost of reaching compatibility between both two-sided platforms is higher but the effects of positive inter-group network externalities on both sides of the platform are bigger, both. platforms prefer the strategy of incompatibility with multihoming. When the cost of reaching compatibility between both two-sided platforms is higher and the effects of positive inter-group network externalities on both sides of the platform are not bigger, both platforms prefer the strategy of incompatibility without multihoming. Especially when the platform wants to lock in its own users, it will choose this strategy firstly.Furthermore, it is worth noting that it is known through study that the openness choice of the platform is affected by the size of the parameter of negative intra-group network externalities among merchants and the differentiation degree of the product or service on the side of the merchant of the platform, but the effects are hard to judge. However, anyway, it is sufficient to allow the platforms to pay full attention to the competitive effects and the differentiation level of the product or service on the side of the merchants when they make openness choice.Chapter seven is conclusion and prospects. As the final chapter of this paper, it firstly summarizes the analysis of the whole paper; secondly, it points out the shortcomings of this paper; finally, it points out the development direction of future research.
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