23504 - Economics of Competition and Strategy - Economics Assignment Help

Assignment Task

1.This question examines the strategy of a firm that provides a free platform. Firm A operates a free platform in a one-sided market with a group of potential users. Al-though firm A does not charge a price to join the platform, users do pay a price in terms of the time they spend on it. Specifically, each user's utility from joining the platform is 11,4=211-e•sAt, 
 

where u is the intrinsic value of the platform to every user (which we will assume is the same for everyone); e • sA is the value of the network effect (where e > 0 is the marginal value of additional users and sa is the platform's market share); and t is each person's opportunity cast of time. Assume that this time cost t is distributed uniformly over the interval (0,1).1 The platform has zero marginal casts and does not charge a price to participate. 
 

(a) Which users will join the platform and which won't? Answer this question with an inequality written in terms of the time cost t and the parameters u and e. 
 

Suppose that the intrinsic utility a depends on how much the fin invests into developing new features for the platform. That is, tr is a function of how much the platform invests. Specifically, the fixed cost of providing some level of intrinsic utility u to users is given by the function2 C(u) = u2. 
 

Moreover, the firm does not charge anything to join the platform, but it can monetise users' time, by displaying advertising on the platform. The platform captures advertising revenue equal to v • 84, where u is the marginal revenue from advertising and sit is the platform's market share. 
 

(b) Write the platform's profit I .9 a function of v, is, and e. What is the optimal level of intrinsic utility that nuuchnises the platform's profit?

(c) How do the optimal level of is and the firm's profit depend on the parameters v and e? Discuss briefly. 

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