Network scale and barriers to entry: scale restrictions -Part 1

Si Gyeongmin

Sep 12, 2021

Network saturation

When evaluating the anti-competitive effect of network scale, the first factor to consider is "network saturation"-that is, the scale of the network is sufficient to promote complementarity and generate positive spillover effects. Once this threshold is exceeded, it is almost impossible to obtain additional user benefits. A lower network saturation threshold means that there will be ample opportunities to customize network services through differentiated functions to meet the specific needs of sub-group users. This means that, in principle, this differentiation can promote market access and platform competition.

The process of early operators in the market competing with their successors for the dominance of the next-generation platform technology (such as in the US home video game market) shows that early operators will quickly reach network saturation, which makes complementary product suppliers turn to smaller but developing platform networks. companies. Similarly, complementary suppliers will be more likely to launch their best and most innovative products on smaller platforms. Compared with large dominant platforms, these platforms provide a more relaxed, clearer, and possibly more conducive environment for their products. At the same time, a similar effect was shown in terms of the innovation of user-created content.

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