Economics of Platform Design

Creating a platform involves ex ante design and development of a set of assets (components, modules, production equipment etc.) so that they may be used by more than one product variants centered on the platform. The design decision, therefore, pertains to the identification of assets and the product variants that should be based on the platform. The interrelated issues are the fit between the platform assets and planned product variants, and the costs of assets on and off the platform. The market share, in turn, would depend on how well the attributes of the product variants are liked by customers (Gupta and Krishnan 1998). 

Consider a scenario with a set of design alternatives (product variants), I(i e /) a set of assets considered for the platform design, T(t e T) and a set of customer desired product attributes, B b B). Next, for a set of known product variants (i.e. given 7) and known customer desired product attribute (i.e. given B), define three types of constants  

if asset f is needed for customer desires attribute b 0 otherwise. The set of assets needed to engineer the bth customer desired product attribute is expressed as Tf, = [t u,i, = 1. It follows that U Tf,-T. 

Ufi = n, if n units of the asset t is needed for product-variant i 0 otherwise. 

Examples of u,h and are shown in Fig. 3.5. Note that while the product attribute 1 requires three assets, attribute 3 requires only two assets. Similarly, product variant 2 is defined by three product attributes, whereas, variant 2 is defined by only two attributes. 

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