Understanding Two-Sided Markets and Platforms in India

Explore the impact of two-sided markets and platforms on the Indian economy, focusing on factors like mobile broadband growth, startup ecosystems, characteristics of pricing models, and the taxonomy of e-commerce. Learn about asymmetrical competition dynamics, winner-take-all effects, and regulatory interventions shaping the digital landscape in emerging markets.

• Two-Sided Markets
• Platforms
• India Economy
• Mobile Broadband
• Startup Ecosystems

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1. Two-Sided Markets, Platforms and their impact on Economy: Cases from India Dr. V. Sridhar Professor International Institute of Information Technology Bangalore, India vsridhar@iiitb.ac.in www.vsridhar.info 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 1 12-13 December 2015

2. ICT parameters of India (ITU, 2014; IAMAI, 2015) Mobile broadband subscribers Mobile broadband Penetration per 100 pop While Internet in India took more than a decade to move from 10 million to 100 million and 3 years from 100 to 200 million, it took only a year to move from 300 to 400 million users. (IAMAI, 2015)

3. Global Start-up Ecosystem Ranking (Compass, 2015)

4. Two-Sided Markets and Platforms (2SMP) Cab Drivers Cab Seekers Product/ Service providers Information seekers Job seekers Job Providers Same-Side Network Effect Seller Two-Sided Market Platform User Set 2 User Set 1 Buyer Cross-Side Network Effect Patients Doctors Publishers Readers Rochet & Tirole, 2004 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 4 12-13 December 2015

5. Characteristics of 2-SMP Pricing (Prasad & Sridhar, 2014) Asymmetric Money side, subsidy side Competition (Eisenmann, et al., 2006) Platforms tend to get commoditized Increasing returns to scale Winner-take-all Monopoly or oligopoly Waterbed effect (Economides & Tag, 2012) Single-home or multi-home Compete for single-home users Charge premium on multi-homing side to subsidize single- homing side

6. Taxonomy of e-Commerce Decreasing search cost Directory Services Disintermediation Regulatory Intervention Economic Value- Add Aggregator Platforms Liability E-Market Places In emerging markets, many market verticals are relatively unorganized compared to developed markets; there is often information asymmetry leading to high search costs and arbitrage opportunities; 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 6 12-13 December 2015

7. Regulatory Arbitrage Market Efficiency Competition Social Benefits Platform Cab Drivers Cab Seekers Ola Cabs Service Providers Information Seekers JustDial Job Providers Job Seekers Babajob Advertisers, Readers of e- Books Readers of newspapers DailyHunt Hospitals, Labs Patients Practo 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 7 12-13 December 2015

8. Competition Issues Increasing economies of scale due to network effects Oligopoly or even monopoly results -> reduction in consumer welfare Horizontal and vertical integration -> public benefits (Rogers, 2015) Platforms tend to get commoditized -> barriers to entry is less Predatory pricing VC investments Short term vs. long term Regulatory arbitrage Level-playing field with incumbents May reduce efficient use of economic resources (Weber, 2014) Social costs (privacy, labour benefits) < Social Benefits 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 8 12-13 December 2015

9. Regulatory Guidance Regulatory rules for e-Commerce to be different compared to the traditional brick-and-mortar business Mandatory compliance Cabs should run on LPG -> environmental protection Background check of housemaids -> improve security Content editing in mobile news -> social harmony Background verification of Doctors -> patient wellness Food safety check -> protect health of foodies Other market regulatory rules Fare regulation -> reduces market efficiency Additional taxation -> increases platform costs FDI regulation-> reduces overseas investment 4th CUTS-CIRC Biennial Competition, Regulation & Development Conference 9 12-13 December 2015