Home > Research > Agent-Based Simulation for Analyzing Platform Strategies of Cellular Operators (Fujikawa 2008)

Agent-Based Simulation for Analyzing Platform Strategies of Cellular Operators (Fujikawa 2008)

Takuya Fujikawa, Master of Engineering, 2008


1. Background and Purpose

In the field of cellular phone industry, the competition among cellular operators has been accelerated. It is important for cellular operators to to choice platform strategy. For example, in the case of the application service that is called as "Chaku-uta", NTT docomo adopts open strategy and KDDI adopts closed stratesy as platform strategy. The research purpose is to evaluate the effect of platform strategies.

2. Network Externality and Platform Strategy

We define some concepts like network externality, platform strategy and so on.

2.1. Network Externality

In the field of cellular phone industry, the indirect effect of network externality is worked strongly. Network Externality is an effect that increases utility of a network in which more services aggregate in large user population. For example, contents providers want to provide contents to large market. On the other hand, users want to choice career in which lots of contents aggregate. We say that the term contents represent general cellular contents like "Chaku-uta", game and so on. We say that contents provider (CP) represents an actor who provides contents to platform.

2.2. Platform Strategy

We say that platform represents a base for application service provided by career. The platform strategy is consist of open strategy and closed strategy. The open strategy adopts standard technology and collects large scope contents. On the other hand, the closed strategy adopts original technology and opens the platform for limited contents.

3. Empirical Analysis

In this chapter, we test following hypotheses.

The cross platform makes the same content correspond to several platforms. In this research, we test these hypotheses and get the result that says the closed platform is useful strategy that can make the other firm's imitation be late and is a difficult strategy for collecting CPs.

3.1. Test Hypothesis 1

We test this hypothesis by surveying 3 careers service, which are Docomo, Au and Softbank, and statistical analysis. Consequently, we can get the result like Fig.1. We show closed platform gets behind the times than other firm in terms of imitation.

3.2. Test Hypothesis 2

We collect and aggregate sample by the characteristic of open platform by career. By the sample, we implement Χ2 test and get significance in 1 % level. As a result, we can say that there is a different correspondence between open platform and closed platform.

4. Agent-Base Simulation

In the field of cellular phone industry, there is a complex interest among CPs, user and careers. Therefore, we use agent-based modeling that has advantages to model complex problem.

We use the model of Nelson and Winter. The model represents the technological competition among firms in single product. In this research, we use this model as a base model and add some part. The part means the characteristic of cellular phone industry and platform strategy.

5. Simulation Model

We make a model that represents the relation among careers, Cps and user. Careers have their own network and invest it each year. The careers also provide platform, imitate other firm's platform and develop new platform by R & D. CPs enter the market each steps and. The CPs choice 1 platform and provide contents. Users choices their contents based on their decision making standard and change their careers.

Careers choices their platform strategy such as open and closed. The CPs's choice of platform is different by platform strategy of careers. Careers hope to get more users by their platform strategy.

6. Scenario Setting

We show the parameter setting and scenario setting here. Parameters in this model contain the number of user, period of late of imitation, index for success of new development, probability of changing careers and so on. As to these parameters, we set realistic parameters by using real data, regression and result of previous empirical analysis.

We set some scenario of careers. Each career has platform strategy and investment strategy. The platform strategy is {Open Strategy, Closed Strategy}. The investment strategy is a product of two sets, which are {Investment Oriented, R&D Oriented} and {New Development Oriented, Imitation Oriented, Balanced}. Thus, the total number of scenario is 12 like Fig.2.

7. Simulation Result and Discussion

We analyze the simulation result of all scenarios. We suppose cellular phone industry in Japan, thus career number is 3. There're 364 scenarios because there're 3 careers and 12 strategy scenarios. We repeat the simulation 100 times respectively.

We define the winning as the career having the highest market share when the simulation finished. We calculated the rate of winning of each strategy like Fig.3. The imitation strategy has high winning rate. We can say that the imitation strategy is important to get higher share.

Next, we analyze the real case, which means that the NTT doocomo has highest share in the field of cellular industry and KDDI and Softbank go after NTT docomo. This is represented by the number of users contracting with careers. The result winning ratio and average share in this case is like Fig.4. The proper response strategy of both KDDI and Softbank is CSB strategy like Fig.5. We also analyze the factor for making career wined from the cases. Consequently, we show the timing of imitation and new development is important. We also take sensitivity analysis in order to observe the behavior of winning rate when changing several parameters. Consequently, we also show several facts. For example, if the number of CP entered has increased, the impact of open strategy would be increased.

8. Conclusion

In this research, we show the existence of platform strategy by empirical analysis. We also make simulation model that represents cellular phone industry. By using this model, we show the usefulness of platform strategy. Consequently, the importance of imitation strategy for getting high share is showed. We also analyze the real case of cellular phone industry in Japan by simulation. We show that if cellular firms such as KDDI and Softbank change the strategy from current state, they would have possibility to win NTT docomo.

We get some condition for making closed strategy and open strategy worked well by simulation result analysis in detail.

9. Future Work

Introducing some element to the model is needed. The elements are price strategy and cash flow of firms. It is important for careers to consider price strategy like base price and communication price. It is also important to take the cash flow considered for firm's investment. If we introduce price aspect to the model, we have to change user's behavior because they change decision making standard. The strategy in this model isn't dynamic. In the real world, the strategy changes dynamically. Therefore, we have to introduce dynamic of strategy changing of careers.

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