Founding Father of Platform Economics Wins Nobel Prize

French economics professor Jean Tirole of the University of Toulouse was awarded the 2014 Nobel Prize in economics this week. Tirole, who was recognized in particular for his work on competition and regulation, is also one of the founding fathers of platform economics.

Contribution to Platform Innovation

His 2002 paper, “Platform Competition in Two-Sided Markets,” co-written with Jean-Charles Rochet, is a landmark study of how platform markets work. The paper focuses on the major problems unique to multi-sided markets, like the chicken-and-egg problem and platform pricing, in particular that “platforms must choose a price structure and not only a price level for their service.” Rochet and Tirole then apply these insights to a number of platform markets, including credit cards, videogames, operating systems, messaging and content streaming.

nobel

Tirole’s work in this paper, as well as his follow up work in has served as the foundation for most of the research on platform pricing that has happened since, so it’s very exciting to see such a major figure in platform economics recognized by the economics profession at large.

Tirole was also the advisor of University of Chicago professor and Microsoft Research E. Glen Weyl, who is an Applico Advisor. Weyl and Tirole also co-wrote the 2012 paper “Market Power Screens Willingness to Pay,” which focuses on pricing to reward innovation, using the App Store as an example. The paper has particular application to platform markets, where third-party innovation is one of the key sources of value.

Weyl’s own work on platform pricing, which builds on Tirole’s research, has been published in the Quarterly Journal of Economics, the world’s top-ranked economics journal. It also serves as the basis for Applico’s own Platform Pricing Framework, which enables businesses to create financial models that appropriately value their platform’s network effects.

For more on Tirole’s research on platforms, check out this piece from Vox.

Image source: Wikimedia Commons

Filed under: Platform Innovation | Topics: App Store, platform economics, platforms