Internet Portals as Portfolios of Entry Options

Internet Portals as Portfolios of Entry Options

Tinbergen Institute Amsterdam
University of Amsterdam; Centre for Economic Policy Research (CEPR)

December 19, 2000

EFA 0549; AFA 2001 New Orleans Meetings

We investigate the valuation of platform investment, such as a software operating system or an internet portal webpage. Platform investment is the creation of an innovative distribution and production infrastructure which increases access to customers; as a result it reduces entry costs in related products. Relative to conventional producers, firms built around platforms enjoy enhanced entry options in uncertain market segments, to be exercised at the optimal strategic timing. When the platform grants a strong strategic advantage, the innovator firm can optimally choose the timing of entry when its strategic gain exceeds the value of the wating option; in case of weaker advantage, the platform firm enters just before its competitor would. In a context of increased uncertainty, the relative value of platform to traditional strategies increases; the value of waiting to invest rises, but the value of platforms increases even more. In some cases, platform can reduce entry by making parallel monopoly sustainable.

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Contact Information for SILVIA ROSSETTO (Contact Author)

Tinbergen Institute Amsterdam
Faculty of Economics and Econometrics, Finance Group Roeterstaat 11
1017 EG Amsterdam
+31 20 525 5351 (Phone)
+31 20 525 5285 (Fax)

Contact Information for ENRICO C. PEROTTI (Email address for ENRICO C. PEROTTI )
University of Amsterdam
Roetersstraat 18
Finance Group
Amsterdam 1018 WB
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

(No e-mail address available for ENRICO C. PEROTTI )
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London EC1V 7RR
United Kingdom

Suggested Citation
Rossetto, Silvia and Perotti, Enrico C., "Internet Portals as Portfolios of Entry Options" (December 19, 2000). EFA 0549; AFA 2001 New Orleans Meetings.

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