Development and competition of digital service platforms: A system dynamics approach

- A system dynamics model of platform development is built.
- Three scenarios of platform development and competition are simulated.
- Open interfaces accelerate platform adoption and make competition more even.
- Data transferability reduces switching costs for platform users.

Digital service platforms are becoming widespread in all areas of society. One risk scenario in platform development is related to the fragmentation of development efforts and the failure to achieve a critical mass of platform users, while a second risk scenario is related to a winner-take-all situation in which one platform firm achieves a monopoly position in the market. We develop a system dynamics model of platform development that includes two competing platforms, and use the model to simulate various development paths by varying different factors that affect how resources accumulate to the platforms. Our simulation results show that delays in users' decision making can increase the likelihood of achieving critical mass. In addition, open interfaces and data transferability between platforms can accelerate platform adoption and decrease the likelihood of a winner-take-all situation. The simulation results also reveal more nuanced development paths than simple S-shaped growth because of delays in platform development and different cross-side network effects to end users and service providers.

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