Catch me if you can: A simulation model of the internationalization of digital platforms

Abstract

Digital platforms have grown rapidly by facilitating connections among users to exchange products, services, or information. However, very few platforms have a truly global footprint given that factors such as competition, imitation, innovation, and cultural and political barriers hamper a digital platform's international growth path. The geographical scope of network effects plays a crucial role in this process, impacting users at various levels from the local to the global. We model the dynamics of international platform competition and predict its outcomes in terms of global potential market percentage through a simulation of the international growth of a two-sided platform in competition with two follower platforms in different locations (home/abroad) and different internationalization strategies (gradual/accelerated), and operating under different network effects (local/global). The model contemplates different delays in the launching of the rival platforms and different degrees of innovation (improvement) in comparison with the original platform.

Our findings highlight the crucial role of network effects, with global effects benefiting first movers and local effects favoring followers, especially if they start in a market different from the first mover's. Moreover, domestic followers must innovate, while followers in less competitive markets with local network effects have more options to increase potential market percentage, including launching a clone. These insights offer valuable suggestions for strategy development and regulatory considerations related to market share, market power, and international expansion.