Cross Network Externality,Platform Entry And Market Competition

The particularity of two-sided platforms determines its competitive goals have phase characteristics.In the period of market entry,they need user access as the core for user base as soon as possible to achieve the minimum network scale needed for platform survival;in the period of market competition,they should take profit maximization as the goal and gradually adjust business strategy.In the whole process,the cross network externality has played an important role,which is the essential feature of the two-sided market different from the one-sided market.When entering market,the new platform often adopts strategies to accumulate the user base firstly.Under the action of the cross network externality,the users on the other side consciously join the platform,thus solving the problem of "chicken and eggs" in the early stage of the platform.In general,the incumbent platform often has the predominance.Because of the early entry time,the user base has already broken through the minimum network scale,and the positive feedback effect of the cross network externality makes the network scale further stronger.The huge user base will undoubtedly constitute barriers to the entry of new platforms,thus increasing the difficulty of new platforms entering the market.If the new platform does not have a clear competitive advantage,will make incumbent platform 'winner takes all' due to the platform in homogeneous.In the two-sided market,there is no lack of new platform to break through user barriers,successfully enter the target market and get a larger market share,Alipay into the real payment scenario is a good example.When the user base of the platform reaches the minimum network scale,it will participate in the subsequent market competition.At this stage,the growth of network scale and platform profitability are very important.The former reflects the total demand and possible number of transactions that the platform is facing,and the latter directly refers to the final economic results of the platform.This paper,starting from the cross network externality of the new platform,studies how to break the "winner take all curse" of the incumbent platform and form the lasting competitive advantage of the platform.The study found that when the cross network externality of new platform is greater than that of the incumbent platform,the platform has the potential to enter the market successfully.If the new platform takes the strategy of locking one side of the user at first,so that the user on the other side will join the platform under the action of the cross network externality.The positive feedback mechanism makes the network scale of the new platform grow stronger.In addition,as the cross network externality of the new platform increases,the user access advantage,pricing advantage and profit advantage of the new platform will become more prominent.We make an empirical analysis of Alipay's entry into entity payment scenario.Firstly,we measure the cross network externality of Alipay platform and bank card platform,find that the cross network externality of Alipay platform was significantly greater than that of bank card platform.Further,we analyze the influence of Alipay platform's cross-network externality on the users' acquisition and profitability of incumbent platforms.The results showed that,the users' acquisition advantages and profitability advantages of Alipay platform will increase with the increase of the cross network externality,thus the theoretical analysis of this paper can be verified.Several scholars have studied the forming mechanism of cross network externality,think that the size of the cross network externality is affected by platform's quality threshold,thus,improving the quality of the platform's product innovation or service may magnify the relationship between users and help to raise the competitive power of the platform.