Coordination Problems in Platform Markets Under Uncertainty Available to Purchase

This monograph presents a stylized model of dynamic coordination problem under uncertainty, which is a common issue in platform markets. We consider a scenario where developers make risky investments in developing a complementary good. The optimal decisions of consumers and developers are intertwined and depend on the expectations regarding the other side’s behavior. Consumers joining the platform before the full development of the complementary good obtain the basic utility as well as real options to benefit from possible future improvements. The platform owner influences the outcome of the coordination problem through its price policy that trades off between building an earlier consumer base versus extracting profits from early adopters. When the cost of developing the complementary good is small, a priceskimming policy is optimal. Interestingly, price-skimming remains optimal when the cost is high as long as the value of the complementary good is either small or relatively high. For intermediate values, however, the platform adopts a price-penetration policy.¹