The Resource-Based View of Competitive Advantage in Two-Sided Markets

Using two-sided markets as a specific market context, we show that cross-group network effects can turn the participants of a two-sided network into critical resources. In two-sided markets such as payment cards and personal computer operating systems, two groups of agents interact with each other via a common network platform; the value of joining the network for agents in one group depends on the number of participants in the other group. In these markets, resource heterogeneity is represented by different sizes of existing networks; resource accumulation possesses all five characteristics of asset-stock accumulation summarized by Dierickx and Cool. The unique resource accumulation process provides an isolating mechanism for large networks to sustain their resource and competitive advantages. Using two dynamic systems models, we show that resource heterogeneity (i.e. varying initial network sizes) is a source of sustained competitive advantage for two-sided networks and has significant impact on long-term competition dynamics. The findings illustrate the importance of incorporating market context in the research of the resource-based view of competitive advantage.