I’ve recently become a convert to Stata for data analysis tasks, and it seems to be an excellent piece of software. One thing that interests me about statistical software in general is the proliferation of different programs. Aside from Stata, there’s SAS, SPSS, R and Eviews, to name a few. Unlike operating systems or wordprocessors for example, there’s no one dominant standard, and each has its own quite loyal and sizeable user base. I guess data file sharing is less common among users of this software compared to wordprocessors, but there still are some network benefits associated with support that you can get from other users of the same software. So it’s interesting that so many varieties can persist in this market but seemingly not in other software markets.

Interesting things are going on in social networking right now, with all the major players trying to extend their services beyond their own sites to third-party sites (see here and here). One interesting thing about Google’s Friend Connect offering is that it allowed you to access your Facebook friends, as well as friends from other social networking sites. Now, in the name of ‘privacy’, Facebook has banned Friend Connect from doing this.

The basic issue here is whether social networking platforms want to compete with each other as ‘closed’ platforms, where a user of a platform can only access users of the same platform, or as ‘open’ platforms where a user of a platform can access users of all platforms. For competition between similarly-sized platforms, openness actually reduces the intensity of competition, and so platforms should prefer to be open. With open platforms, a price rise hurts the platform that raises its price less than with closed platforms, since the users who do not switch to a competitor as a result of the price rise can still access those who do switch, so the value of the platform to the remaining users does not fall. Openness increases the incentive to raise price (softens competition), which should increase profits. Of course, social networks currently compete in non-price dimensions for users, but the basic idea still holds.

On the other hand, openness makes the industry more stable and less prone to ‘tipping’ towards one platform or another. Thus while openness softens competition, it also makes it less likely that a single network will emerge as dominant. Whether a platform wants to be open with its competitors or not depends on whether it thinks it can win the battle for dominance in the long run. If not, better to be open with your competitors and accept a slice of the pie rather than no pie at all. If yes, better to be closed so as to try to force your competitors out, and eventually you might get to eat the whole pie.

It’ll be very interesting to see how this plays out. Expect to see a lot more strategic manoeuvring before it’s over.

From Bits:

Pilfered credit card numbers and bank account PIN numbers have become commodities on shadowy Web sites where stolen digital information is bought and sold.

Company e-mail, business documents and personal health information are the new targets of choice for illegal hackers …

A couple of years ago, credit card numbers and bank account PINs sold for $100 or more on sites selling stolen information … Now, the price is down to $10 or $20, compared to $150 to $200 for some of the newer documents.

Ahh the wonders of competition never cease to amaze …

I wonder why personal health information is valuable? Blackmail?

The next-gen DVD war between HD-DVD and Blu-ray is over, and Blu-ray won. Now Engadget reports that Blu-ray player retail prices are increasing. This is not really surprising. In a market like this that is dominated by network effects, there is typically strong competition for the market in the early stages. Then a dominant standard emerges and can raise prices to make profits until the next new technology comes along.

If you only focus on the latter stages, it can look like a bad deal for consumers. However, taken as a whole (over time), competition may be no less intense than in other markets. When making an assessment of consumers’ welfare, we should consider those who bought early at a low price as well as those who buy later at a higher price. On the other hand, those who buy early also run the risk of picking the wrong standard and getting stranded. Anyway, my point is that to make a judgment about intensity of competition and consumer welfare in these markets we need to take a long-run perspective.

Google has announced a new display advertising platform for small and medium sized websites. Unlike Adsense, websites hosting these ads get paid by the number of pageviews, rather than clicks.

Google’s service is going to be free to web publishers that host the ads. There are a number of other companies that offer display ad platforms like Google’s, and they typically charge web publishers for their service. So one might wonder if this is predatory pricing by Google. Although the marginal cost of serving an ad will be very small, it will not be zero, so Google is pricing its service below marginal cost to web publishers. Isn’t that anti-competitive?

The answer is that this is a two-sided market and things are more complicated. Google has two groups of customers for its advertising platform — advertisers and web publishers. It can raise revenue from both, and costs are jointly generated by both sides. Google will set prices on both sides of the market jointly, and we cannot look at the price on one side in isolation. So just looking at the price charged to web publishers and observing that it is below marginal cost does not tell us that Google is behaving anti-competitively. We also need to consider prices charged on the advertiser side.

This paper (pdf) has a very good explanation of some of the mistakes you can make if you apply one-sided thinking in two-sided markets.