ABSTRACT
The development of digital platforms relies on network effects, which can be direct (same-side) or indirect. Direct network effects occur when the platform’s value increases with the number of users on the same side, while indirect network effects arise from interactions between different user groups. Both effects contribute to economies of scale, strengthening competitive advantages. As platforms grow, they can lower costs and invest more in development. However, network effects can also create barriers to entry, giving established platforms a competitive edge.
Several economic theories explain platform development, including agency theory, behavioural economics, transaction cost economics, and the economics of market infrastructure. These theories help to understand the dynamics of digital platforms, from participant conflicts to data exploitation and reduced transaction costs. Systems thinking is also essential for analysing platform ecosystems, offering a framework for creating more adaptive and resilient platforms.
Digital platform infrastructure enhances interconnectedness across global, regional, and local levels. While digital platforms have a global reach, regional and local dimensions remain important. The rapid growth of digital platforms accelerates internationalization and globalization in the economy, often leading to monopolistic market structures.
