Dynamics of two-sided platforms in public administration

This paper argues that some key aspects of the management of public platforms can be described well by using the logic of two-sided markets. Many government platforms aim to attract a critical mass of citizens on one side and a diverse array of administrative services or business entities on the other. We develop a dynamic model of two-sided platforms to study such platforms. Previous studies show the importance of initial network sizes in the research of the resource-based view of competitive advantage. We introduce capacity constraints and within-group network effects to the standard models and show that they play a crucial role in the success of public platforms. In particular, we show that public platforms must be wary of negative within-group externalities because they can hinder achieving the critical mass of users. Additionally, we caution against excessively high membership fees, even for the side with for-profit companies. Our theoretical model generates dynamics consistent with the stylized S-shaped growth patterns commonly associated with platform adoption. We run simulations (with assumed rather than estimated model parameters) to demonstrate the sensitivity of this growth trajectory to changes in the levels of within-group externalities.