A Research On Openness Strategy Of Platform In Two-sided Markets

The open platform is showing its great advantage in platform competition in many industries, such as e-business, mobile operation system, Internet, etc. Compared with closed platform, not only can the choice to be open save the sale management costs, but also meets the diversified needs of customers by adding the third party, increases the value of the platform, so as to form the situation of platform-suppliers-customers mutual benefit. However, there is few literatures focus on the internal motivation of the platform’s strategy and benefits analysis in either open or closed platform in domestic academia. So, I decided to choose the openness strategy of two-sided platform as the research object, which has important theoretical and realistic significance.This paper summarized the definition and classification of two-sided platform enterprises’openness strategy, and the benefits based on domestic and international literatures. It researched on some transactional intermediary such as TAOBAO, Wal-Mart, and explored the influence factors and the choice mechanism of the openness strategy.As a transactional two-sided market intermediary, the selling through the platform by a third party is permitted in an open strategy, while it’s forbidden in a close platform. Choose to be open means to give up the property or control of the products, the intermediary turns from sellers selling products directly to customers to operators providing trading places and basic services.The essential difference lies between the open mode and the closed mode is whether there are cross-group network externalities between buyers and sellers. In the open mode, the number of users of one side effect the other side, which means the cross-group network externalities exist between buyers and sellers, while in the closed mode, the cross network externalities don’t exist.Then, this paper discussed under the environment of the monopoly and duopoly, the benefits on different strategies according to cross-group network externalities and other related factors and the optimum choice of the platform based on the principle of profit maximization.Finally, it concluded that in a monopoly market, the openness strategy depended together on merchant anticipation, scale economic degree of the platform sales activities and cross-group network externalities between buyers and sellers. As the merchants having bad expectations dominated the total number of the merchants, and there are large-scale economics in platform sales activities, the sales costs saved exceeded the total loss of all merchants in a closed mode comparing to the network externalities unity the merchants gained in an open mode, the platform should choose to be closed.While in a duopoly market, the openness strategy depended together on the different cross-group network externalities between buyers and sellers, platform competition degree and production costs of merchants. For sufficiently large differences in cross-group network externalities, both firms are open to third party, they are trapped in a prisoner’s dilemma, when they equals, then both firms choose to be closed. If the difference is sufficiently small, one platform is open and the other is closed, or both two are closed, which is decided by the merchants production costs in the open mode and competition degree between two platforms.