Thoughts on platform economics

The emergence and development of the Internet has broken the original classic hierarchical organizational structure, which makes today’s society more “decentralized”.However, at the same time, the connection and interaction between people has become unprecedentedly close, even though people live on opposite sides of the earth, we can carry out profound exchanges and cooperation.In fact, in a sense, the society itself is rebuilding “centralization” in a new form, and the important point for the original “decentralized” society to become “centralized” again is actually “platform”.From a classical perspective, platforms are a very strange thing — there has been a dichotomy between the market and the enterprise since Trokos, and it is natural to assume that the two are opposed.However, the platform has the characteristics of market and enterprise at the same time: from the perspective of function, it plays the role of market, mainly used for communication and interaction between people;But in terms of the form of expression, it is often presented in the form of an enterprise or a group.Today, the rise of the platform economy may actually be the most important business event of the new century.It has a very unprecedented power to connect people closely together, bringing people great convenience and speed.Through this “platform”, even people separated by thousands of miles can communicate, complete transactions, and even work together.At the same time, however, platforms are amassing wealth faster than ever before.For some traditional enterprises, it may take decades or even hundreds of years to achieve the market value of 10 billion yuan or even 100 billion yuan, but for platform enterprises, it may only take a few years to achieve this process.Today, most of the companies that people think are the most successful are actually platform-based.In recent years, platform practice has been booming, calling for some relevant theoretical guidance and in-depth research.Over the past decade, platform has become an important topic of common concern in many disciplines such as economics, management and political science, and many scholars and experts from different fields have expressed their views on platform issues from their own perspectives.But so far, it can be said that people’s awareness of the platform is far behind the rapid development of platform practice, and there are often far more differences than consensus on many issues.Evans has divided two-sided markets into three types: market creators, audience creators, and requirements coordinators.The creators of marketplaces have been able to unite two different groups interested in transactions, greatly increasing their likelihood of matching, and greatly reducing the cost of search. They themselves represent e-commerce platforms, supermarkets and so on.Audience creators are mainly the media industry, including television, newspapers and websites, which will attract as many viewers and readers as possible, so that companies are willing to advertise on them.Requirements coordinators include software platforms, operating systems, payment systems, etc., which do not trade with each other, nor do they buy or sell information, but they coordinate the needs of users to avoid the problem of duplicate costs.Filistrucchi et al. Himself divided the platform into transactional and non-transactional.In fact, transaction-based platforms can produce some “cross-group network externalities”, or a “usage externality”, only when the platform participants are required to make transactions.The most classic example of transactional platform is the vegetable market: the vegetable farmers have signed the relevant lease contract with the relevant department of the market, which will not produce any externalities. Therefore, only the real transaction in the vegetable market can produce the so-called “externalities”.But in non-transactional platforms, where users choose to join the platform, some so-called “cross-group externalities” occur.One obvious example of a non-transactional platform is the online dating platform.As long as users register an account on the platform, there are externalities, but users are not necessarily required to use the platform.▲ Platform externalities Modern monopolist competition issues related to the continuous attention of the platform researchers, in fact, the first began to pay attention to the impact of platform on competition.Different from ordinary enterprises, platform enterprises are more likely to expand their scale, thus forming a monopoly phenomenon, and at the same time, they are more encouraged to abuse this power.Why is it easier for platform companies to scale up and form a monopoly effect?In fact, the reason lies in their “cross-group network externality” characteristics.Because “cross-group network externalities” still exist, platforms have the unique property of “chicken and egg” : as long as the number of users on one side grows, the number of users on the other side will grow immediately.On the contrary, it will also increase the number of users of the original party…If repeated, the growth of the platform will be very rapid.At the same time, develop platform companies tend to also have some of the so-called “within the group of network externalities” characteristics, so when a platform the size of the growing, its huge scale for the barriers, it increases the join so that more new enterprise is difficult to have the opportunity to once again to join them, which will form the “winner-take-all” significant problems.▲ Platform monopoly Therefore, after gaining a certain amount of market domination power, the platform will also have more motivation and ability to abuse this power to a certain extent — at least in theory, it should be so.Compared with the average enterprise, it is easier for the enterprises that create the platform to use predatory pricing, tie-in, price discrimination and other despicable methods to grab the surplus from consumers.Ignorance of “monopolists” In fact, for these so-called monopolistic behavior, we are also difficult to determine.For “predatory pricing” : For traditional and classic business models, we can determine whether an enterprise has engaged in the so-called “predatory pricing” by comparing the relationship between cost and pricing among enterprises, but for those enterprises that develop platforms, it is very difficult to do so.Because of the emergence of the “non-neutral price structure”, it is entirely possible for an enterprise to let the price of one party be far below the cost of the whole under the condition that the price of the whole is not below its own cost.Whether this would qualify as “predatory pricing” is highly debatable.In fact, we know very little about whether the new monopolists are angels or devils.In traditional markets, it is mostly beneficial for firms to compete with each other as long as there is no so-called natural monopoly.But for these multilateral platforms, this logic doesn’t really apply.Even discounting those economies of scale, the presence of many platforms at the same time weakens the externality of the cross-group network, so efficiency is not necessarily improved.When the platform monopolizes, it can maximize the externality of the network.The boundary between regulation and governance is actually the so-called platform governance problem, which takes the platform as the main body and forms an ecological governance problem with other as the center.Here, the platform ecology in general refers to a series of ecological environments composed by the platform and its participants, while governance is a set of specific rules that attempt to regulate the participants in the ecosystem and how to allocate surplus value and resolve disputes.For the management of a thing, there are no more than two main ideas: one is to control it through policies led by relevant departments of the state; the other is that these related subjects come from the governance measures of development organizations and voluntary participation.In fact, there are many differences between these two management modes. First, from the perspective of purpose, the relevant departments of the state take the maximum welfare of the whole society as the goal of regulation, but the purpose of platform governance is not necessarily the same.It might have all sorts of other goals of its own.Second, from the perspective of management means, the platform’s own governance is more effective than the policy control of relevant national departments.They can only be implemented through prohibitions, price restrictions and other very limited ways, while the platform can use more tools for its own governance. In addition to using some very conventional means such as prices and prohibitions, it can also make some special rules for its own “autonomy”.Thirdly, from the perspective of information acquisition, the platform actually has more advantages than the relevant departments of the country to obtain some local knowledge.Platform is actually a new thing that has only developed in recent years, and we don’t have any previous experience to offer reference on how to govern platform.However, we can say that we already have a great deal of practical experience in the governance of other similar things.In the practice process of platform governance, we can constantly integrate and apply these experiences, so as to form a new set of governance ideas for our use.In a sense, the platform is actually a common product, and its related governance also involves the “prisoner’s dilemma” and “collective action” and other classic problems.Scholar Ostrom once put forward three basic questions and eight principles that need to be followed in the design of governance rules.The three questions are “who makes the rules”, “how to allocate rights and obligations” and “how to resolve disputes”.The eight principles to follow are designed around these three questions.They are as follows :(1) clearly divide the boundary, including resource holder boundary and resource boundary;(2) Rules of possession and supply should be consistent with local conditions;(3) Local people should be ensured to participate in the formulation of rules;(4) Improve the supervision and management system of the market and platform;(5) The establishment of a hierarchical system of sanctions;(6) Conflict resolution mechanisms are best handled by local people;(7) Minimum recognition of the platform’s right to organize;(8) Establish a decentralized organization.In Ostrom’s opinion, only by firmly grasping these eight principles can we give a complete response to the three basic issues mentioned above, and fully mobilize the important role of these social capital, so as to create a good environment of trust and cooperation.In their new book, McAfee and Brian Furson cite the rise of platforms and platform economies as one of the three defining events of the “digital revolution.”And I also think that such a high evaluation for the platform can be said to be not excessive.The rise of platform and platform economy has profoundly changed our daily means of production and way of life, and has a huge impact on people’s way of thinking.As a matter of fact, we human beings are still very ignorant about the platform. More mysteries are waiting to be explored, and more profound research is waiting to be carried out.

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