Internet Portals as Portfolios of Entry Options

32 Pages Posted: 4 Nov 2000

See all articles by Enrico C. Perotti

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Silvia Rossetto

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: December 19, 2000

Abstract

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.

Suggested Citation

Perotti, Enrico C. and Rossetto, Silvia, Platform Investment as a Portfolio of Strategic Entry Options (July 25, 2000). Available at SSRN: https://ssrn.com/abstract=249986 or http://dx.doi.org/10.2139/ssrn.249986

Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Silvia Rossetto

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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