No abstract

Managers of emerging platforms must decide what level of platform performance to invest in at each product development cycle in markets that exhibit two-sided network externalities. High performance is a selling point for consumers, but in many cases it requires developers to make large investments to participate. Abstracting from an example drawn from the video game industry, we build a strategic model to investigate the trade-off between investing in high platform performance versus reducing investment in order to facilitate third party content development. We carry out a full analysis of three distinct settings: monopoly, price-setting duopoly, and price-taking duopoly. We provide insights on the optimum investment in platform performance and demonstrate how conventional wisdom about product development may be misleading in the presence of strong cross-network externalities. In particular, we show that, contrary to the conventional wisdom about “winner-take-all” markets, heavily investing in the core performance of a platform does not always yield a competitive edge. We characterize the conditions under which offering a platform with lower performance but greater availability of content can be a winning strategy.

Many two-sided platforms (for example, eBay, Google, iOS, Android, Twitter, and Amazon) provide integration tools, such as modular interfaces, interactive development environments, application programming interfaces, and help desks, to reduce the costs and improve the functionality of third-party content developed for the platform. The need for such investment is increasing with the rise of major new markets as the result of technologies, such as the "Internet of Things." Although crucial to platform success, platform integration tools are costly to create. We develop an analytic model to explore the key tradeoffs behind investment in integration tools and how that investment interacts with pricing decisions in a two-sided market. We model these decisions for hardware/ software platforms as well as hybrid retail platforms and analyze them under various scenarios, including monopoly and competition. Our results suggest that considering integration investment can create market regimes in which the standard pricing results from the extant platform literature no longer hold. For example, the tendency to reduce prices to one side of a market in response to increasing the benefit of the network to the other side may be suboptimal in the presence of integration investment. Therefore, integration investments must be well coordinated with pricing decisions made for both sides of the market. In general, higher levels of investment by hardware/software platforms into integration become desirable when the platform (1) has access to a large pool of content providers and consumers, (2) is able to develop integration tools that are highly effective in reducing third-party development costs, and (3) operates in a market in which content providers earn a high-enough profit margin creating content that is highly valued by the consumer market. Hybrid retail platforms often show similar behavior. However, there are some nuances. For example, business to business platforms can make investments in integration to facilitate participation by both sides of the market. We find that these investments are complements, not-as one might expect-substitutes. We conclude by discussing this work's implications for theory and practice.

The electric power industry is undergoing dramatic change driven by rapid technological transformation, concern over climate change, and evolving market structures. As a result, there is a need for new models to help the industry better utilize resources in a time of increasing uncertainty and to help government policy makers better understand the impacts of their regulatory decisions. We provide a structured review of the operations research and management science literatures to describe the current operational and policy issues in the electric power industry, with a particular focus on issues surrounding electricity market design, renewable integration, effects of climate policy on electric power infrastructure, rise of electric powered vehicles, energy storage, and the growing interdependence between natural gas and electric power sectors. We identify the current research frontier and classify the existing research into clusters with respect to managerial issues addressed. We offer a forecast for where the electric power industry is going and describe some important public policy issues. Finally, we highlight research opportunities and discuss how the management science community can contribute by considering the interaction between operational considerations and electric power policy.

S ourcing from multiple suppliers with different characteristics is common in practice for various reasons. This paper studies a dynamic procurement planning problem in which the firm can replenish inventory from a fast and a slow supplier, both with uncertain capacities. The optimal policy is characterized by two reorder points, one for each supplier. Whenever the pre-order inventory level is below the reorder point, a replenishment order is issued to the corresponding supplier. Interestingly, the reorder point for the slow supplier can be higher than that of the fast even if the former has a higher cost, lower reliability, and smaller capacity than the latter, suggesting the possibility of ordering exclusively from an inferior slow supplier in the short term. Moreover, the firm may allocate a larger portion of the long-term total order quantity to the slow supplier than to the fast, even if the former does not possess any cost or reliability advantage over the latter. Such phenomena, different from the observations made in previous studies, happen when the demand is uncertain and the supply is limited or unreliable. Our observations highlight the importance of incorporating both demand uncertainty and supplier characteristics (i.e., cost, lead time, capacity and uncertainty) in a unified framework when formulating supplier selection and order allocation strategies.