Bob Farid

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By now we have all heard about the power and potential of platform-based business models and the nature of two-sided network effects. By matching demand in two-sided markets platforms are able to catalyze a virtuous circle of value generation, in which each additional user on one side makes the platform more valuable for users on the other side.[1] However, the same force that drives established platforms “demand-side economies of scale”, makes it hard for firms to build a new platform. These firms have to deal with the Penguin Problem, a phenomenon that occurs when no one moves unless everybody moves and therefore no one moves.[2]

As discussed in class, the Penguin Problem can be overcome by subsidizing one side of the market. For instance, a club giving ladies free entrance during Ladies Night and collecting revenue through males, who have due to the network effects, that is the presence of more ladies, a higher willingness to pay. Another strategy that was discussed, was to incentivize referrals. By incentivizing referrals, a dating platform such as The Inner Circle, is able to introduce their platform to a new market through the network of its price-sensitive users, while at the same time collecting revenue from their other more privacy-sensitive users.[3]

Another strategy is to start your platform with closed-group invites only. As you might know, Facebook started off by inviting a select group of Harvard alumni first and branched out to other users later on.[4] Furthermore, eBay, which started out as a C2C auction, dealt with the Penguin Problem by partnering up with a firm called Electronic Travel Auction to sell travel services and plane tickets to customers. This deal sky-rocketed the traffic on the platform, which resulted in positive spill-over effects for eBay’s C2C auction platform.[5] Using a similar strategy, Bol.com dealt with the Penguin Problem by gaining ample traffic on their website through their regular retailing activities.[6] Lastly, an often-used strategy is to attract a marquee platform contributor.[7] By offering an exclusive game Sony, for instance, attracts users to its platform, who will in turn contribute to the network effects of the PlayStation community.

As can be seen, depending on the nature of the platform and the situation a firm can overcome the Penguin Problem by applying an effective strategy. Which strategy do you think is most effective and do you know other strategies for dealing with Penguin Problems? Let us know in the comment section below.

Sources:

[1]Eisenmann, T., Parker, G., & Van Alstyne, M. W. (2006). Strategies for two-sided markets. Harvard Business Review, 84(10). https://doi.org/10.1007/s00199-006-0114-6

[2]http://e-caremanagement.com/overcoming-the-penguin-problem-setting-expectations-for-ehr-adoption/

[3]Li, T., 2018. Digital Platforms.

[4]https://srini108.wordpress.com/tag/penguin-problem/

[5]https://www.telegraph.co.uk/finance/personalfinance/8451898/The-history-of-eBay.html

[6]https://twinklemagazine.nl/2011/02/bol.com-stelt-zijn-platform-open-voor-concurrenten/index.xml

[7]https://hbr.org/2015/04/how-to-launch-your-digital-platform

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A runaway trolley is about to collide into five unaware workers. There is no time to warn them, but you have access to a switch that can derail the trolley onto a track with just one worker. [1]

The question is: Would you use the switch?

This iconic thought-experiment, known as the “Trolley Problem”, is being revived again with self-driving cars.[2] Should a self-driving car save its five passengers from a death fall by running into and killing one pedestrian?

The utilitarian answer of sacrificing one for the many, seems straightforward. Would it however still be for the greater good if the car was full of criminals? Put it differently, would you buy a self-driving car that may potentially kill you for the greater good? From a game theory perspective the Trolley Problem is a zero-sum game and we humans cannot solve it.[3] But, does that really matter?

Some argue that because self-driving cars, unlike humans, do not act by using their intuition, but by executing somebody’s lines of code, we should first settle on the Trolley Problem before we promote autonomous driving.[4]

While this idea may hold theoretically, in reality it does not. In real-life trolley problems are exceptionally rare.[5] They require an inevitable fatality with just one alternative path, which would also cause a fatality. Besides, we are still miles away from having an AI with the capabilities to assess and act upon such scenarios.[6]

We live in a world where 3,287 people die in car accidents every day.[7] Car accidents will happen with or without autonomous vehicles. However, considering that the majority of these accidents are caused by humans [8], we will be a lot better off with self-driving cars. Unlike humans, self-driving cars have the potential to communicate within split-seconds and to “deep learn” from each other in order to avoid these zero-sum scenarios.[9]

Eventually self-driving cars will hack the Trolley Problem for us. Not by making better moral judgements, but by knowing how to avoid the Trolley Problem all together. In a sense, the only true utilitarian act we humans can undertake is to promote autonomous driving.

How do you see the future of autonomous driving? Apart from the Trolley Problem there are still many challenges on the road ahead, such as people losing their jobs and cars being hacked. Feel free to share your ideas in the comment section below.

If you liked the Trolley Problem, watch this episode of Mind Field (from Vsauce) in which they perform the experiment in real-life. Curious to what you would do in a similar situation, check out MIT’s Moral Machine. And if you can’t get enough of these ethical dilemmas, check out these modern Trolley Problem variations.

Sources:

[1]https://www.spaceship.com.au/blog/2017/Trolley-Problem-Ethical-Self-Driving-Cars

[2]https://www.theguardian.com/technology/2016/aug/22/self-driving-cars-moral-dilemmas

[3]http://fairware.cs.umass.edu/papers/Holstein.pdf

[4]http://blogs.cornell.edu/info2040/2017/09/19/the-moral-dilemma-of-self-driving-cars

[5]https://www.weforum.org/agenda/2018/01/why-we-have-the-ethics-of-self-driving-cars-all-wrong/

[6]https://www.washingtonpost.com/news/innovations/wp/2015/12/01/googles-leader-on-self-driving-cars-downplays-the-trolley-problem/?utm_term=.53d8bbfdee9d

[7]http://asirt.org/Initiatives/Informing-Road-Users/Road-Safety-Facts/Road-Crash-Statistics

[8]http://cyberlaw.stanford.edu/blog/2013/12/human-error-cause-vehicle-crashes

[9]https://www.vox.com/2016/6/13/11896166/self-driving-cars-ethics