Creating the great business leaders

DIGITAL ECONOMY
Learning Subject 4:

PRICE AND COMPETITION

Delivered by:
Digital EconomicTeam Teaching
 Fakultas Ekonomi dan Bisnis
School of Economic and Business LEARNING MATERIAL
Telkom University
1. 3 (three) common business model/strategy at Digital Economy;
2. Multi-sided Platform (MSP);
3. Pricing and Competition at MSP;
4. Network Effect on Digital Economy Equilibrium;
5. Path Dependence;
6. Digital Monopolies and Oligopolies.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Digital Platform Business Model (Start-Up)
Telkom University

1. Long tail Business Model

2. Multi-Sided Platform (MPS)

3. Freemium

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Multi-Sided Platform Characteristics
Telkom University
1. They offer uniform, simple, and secure login procedures and ease of use;
2. They offer simple and transparent ways of connecting customers with
matching interests through built-in matchmaking mechanisms, for example,
matching suppliers and consumers in a trade process or providing
information to marketers to support targeted and precise advertisement
campaigns;
3. They offer efficient transaction management, thereby simplifying search,
reducing management costs, and streamlining administrative and payment
processes;
4. They may also assist in trust-building between users within the same group
or between users in different groups.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Example of MSPs
Telkom University

5 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business Pricing Strategy at MSPs
Telkom University
Pricing Model 1: one group user revenue stream
Revenue
Group Stream Group
User PLATFORM Service User
1 Service 2

Pricing Model 2: Subsidies Strategy

Revenue Revenue Classical
Group Stream 1 Stream 2 Group Supply/Demand
User PLATFORM User Theory become
1 Service Service 2 meaningless

Where, Revenue Stream 1 > Revenue Stream 2

Pricing Model 3: Discount Strategy

Discount mediated Item Strategy -- Increasing more buyers of goods – increasing
usage of platform -- add value to the platform in terms of increased cross-side
network effects

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Competition at MSPs
Telkom University
1. Same service platform competition;
2. Different service platform competition;
3. Between the customers of the same type competition.

Advertising aspect:
infuencers promoting various products on their blogs over social media
platforms (e.g., Facebook, Instagram, and YouTube). The infuencers run
two-sided platforms (readers and advertiser) on the Internet without
owning any kind of infrastructure except their own smartphones, tablets,
cameras, or personal computers.

7 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business Network Effect at MSPs
Telkom University

Positive network effect: Feedback

from the market, able to increase
more number of user perceived
value;
Negative network effect: If the
market feedback causes a
perceived decrease in value (e.g.,
fewer users) that stimulates
further decrease in value (users)

Equilibrium Economic is NOT

applicable when the network
effect present.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Two sided – cross side network effect
Telkom University

Figure:
Temporal market evolution
for a two-sided platform

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Market and revenue evlolution - Facebook
Telkom University

Figure:
Market and Revenue
Evolution of Facebook

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Classical Economic at Market Power
Telkom University
Decreasing return to scale
Decreasing of number of output produced because of adding more input (e.g:
number of labor)

Increasing return to scale

The situation where the average cost is greater than marginal cost in order to
increasing the number of output.
or
The situation when the cost to produce one unit of output becoming more
cheaper when producer increasing their number of output.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Increasing return in Digital Economy
Telkom University
Zero Marginal Cost and Network Effect

Increasing returns in the digital economy is generated by positive feedback; that

is, if a company or product gains some advantage (e.g., increasing number of
customers or more sales), it gains further advantages.

These advantages may not generate direct revenues for the company, though
they may generate indirect revenues.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Path Dependence
Telkom University
the path of evolution of the market of a good depends on the initial state of the
market (e.g., number of early adopters), network effects (e.g., bandwagon
effects), and external events taking place during the evolution of the market (e.g.,
product visibility and searching costs).

The different paths may end up in different equilibrium states

13 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business Path Dependence
Telkom University

Figure:
Market evolution of two
competing technologies
with churning.

Churning:
Situation where users move
to one technology platform
to another with similar
service offered.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Path Dependence – Lock in
Telkom University

Figure:
Path-dependent evolution
with one positive feedback
event.

15 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business Path Dependence
Telkom University

Figure:
Path dependent evolution
with two positive feedback
events.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Digital Economics Market Structures
Telkom University

17 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business Digital Economics Market Structures
Telkom University

18 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business

Telkom University

Figure:
Market Types

19 Creating the great business leaders

Fakultas Ekonomi dan Bisnis
School Economics and Business

Thanks!
Any questions?
You can find us at:

http://tel-u.ac.id
@seb_telu

20 Creating the great business leaders

 Fakultas Ekonomi dan Bisnis
School of Economic and Business References
Telkom University
"3 Model Bisnis Umum Startup di Indonesia", Klik untuk
baca:https://www.kompasiana.com/abrahamryan/5529c9caf17e615228
d623bf/3-model-bisnis-umum-startup-di-Indonesia.

Harald Øverby and Jan A. Audestadt. Introduction to Digital Economy. Springer.

2021.

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