Multi-sided platforms

We study the economic tradeoffs that drive organizations to position themselves closer to or further away from a multi-sided platform (MSP) business model, relative to three traditional alternatives: vertically integrated firms, resellers or input suppliers. These tradeoffs lead to a comprehensive discussion of the defining features of MSPs. The formal model we develop focuses on the MSP vs. vertical integration choice, which we interpret in the context of professional services. A key tradeoff emerges between the need to motivate observable effort by professionals (best achieved by a MSP) and the need to coordinate decisions that generate spillovers across professionals (best achieved by a vertical integrated firm). We show how this baseline tradeoff is impacted by the nature of contracts available to the vertically integrated firm and the MSP, and whether professionals hold private information.