Introduction

The last 15 years has seen the striking emergence of new Internet platforms for search, e-commerce, online media, job matching, social networking, and other activities. The growth of these platforms has been dramatic. Amazon, which opened in 1995, has annual revenue of more than 40 billion dollars. Google, which started in 1998, processes more than 1 billion search queries every day. Facebook, founded in 2004, has attracted more than 800 million users. Groupon exceeded 1 billion dollars in revenue in just its third year of operation.

These and other Internet platforms take advantage of how the Internet has lowered a range of economic costs: the cost of creating and distributing certain products and services, the cost of acquiring and providing information, and the cost of collecting and using data on consumer preferences and behavior. These changes helped make Internet platforms dynamic and innovative, and they are inspiring significant economic research.

Several aspects of Internet platforms are distinctive relative to traditional industries. One is the rapid ability to initiate and scale up operations. Internet firms, and especially consumer-oriented Internet firms, often have very low start-up costs and even lower costs of serving additional users because the underlying engineering is scalable. Facebook, for example, grew to more than 500 million users with fewer than 500 engineers, or one engineer for every million users. The potential speed and low cost of expansion are particularly relevant in thinking about the market structure of Internet industries and how platforms can design market mechanisms that operate efficiently and take advantage of large scale.