Superplatforms and Network Effects
https://medium.com/swlh/the-age-of-the-superplatform-18546fa77680
The article discusses the issue of “super platforms” and the different arguments in favor and against them. Examples for arguments for them include the free market, which argues that because digital platforms are usually free and have low barriers of entry, there is no problem with companies like Google or Facebook. On the other hand, some argue that these monopolies should be broken up and move over to public ownership. This is an idea that has been repeatedly endorsed by certain politicians and presidential candidates. Another notable arguments against breaking up super platforms are network effects. The author, Stuart Mills, brings up Nick Srnicek’s Platform Capitalism and states that people only use certain platforms because there are certain intrinsic benefits that only exist because of scale. Mills brings up Facebook as a notable example of this: he argues that companies like these only are successful because the benefits of using these platforms are there because other people are also using it. This is how Facebook was able to expand starting with individual campuses and then scaling up. The crux of his argument is that these companies rely on monopolies due to network effects to function. He also brings up that due to network effects, these companies have international scale and national action serves to be far less effective than traditional trust-busting.
Mills’ network effects argument directly relates to the subject matter covered in class. He covers that network effects lead to extreme outcomes as seen with Google and Facebook. As seen with examples in class, stable equilibrium tend to happen either with no users or a large fraction of the population using the product. These platforms have very low to no prices for a vast majority of their features. This leads to more and more users using the product until the “price” is equal to the reservation price multiplied by the network benefit. An equilibrium that retains a smaller population as users will be a tipping point, therefore unstable. Mills’ argument about network effects can be proved with the above information.