The effect of online platform maturity on the efficiency of offline industry

The role of platform as an information mediator has been becoming more vital by satisfying buyers’ needs for a reasonable purchase and sellers’ need for more exposure to buyers within the copious information flood. For the platform service provider, increasing the network externality is important to induce both sides while platforms can cause sellers to invest more and create severe competition among sellers, which take a toll on sellers’ surplus. Therefore, this study investigates whether platforms yield benefits for sellers as the platform matures, securing the network externality. Thus, this study divides the seller side industry into 3 periods based on the level of platform maturation. The efficiency in each period is measured using stochastic frontier analysis and efficiencies of each period are compared using meta-frontier analysis. The results show the overall industry efficiency improves with securing the network externality as the platform matures. However, if the individual firm is resistant to innovation, the firm's efficiency might not be far behind compared to the firm which led the innovation.