Platform competition with complementary products |
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| Affiliation: | 1. School of Economics, University of Queensland, St Lucia QLD 4069, Australia;2. Department of Economics, Tulane University, New Orleans, USA;1. University of Milano, Department of Economics, Management, and Quantitative Methods Via Conservatorio, 7, Milano 20122, Italy;2. Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille AMSE, France;3. CEF.UP, University of Porto, Portugal;1. Johannes Kepler University Linz, Wifo Wien; IZA, Bonn, CESifo Munich, Germany;2. Johannes Kepler University Linz, Germany;1. University of Exeter, England, United Kingdom;2. University of Minho, NIPE, Portugal;1. Sloan School of Management, Massachusetts Institute of Technology USA;2. Department of Economics and Rotman School of Management University of Toronto Canada |
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| Abstract: | We characterize the pricing structure in a model of platform competition in which two firms offer horizontally differentiated platforms and two sets of complementors offer products that are exclusive to each platform, respectively. We highlight the presence of indirect network effects: platforms and complementors benefit from the quality and number of firms in their group and suffer from the quality and number of firms in the rival’s group through their effects on prices and market share. We then determine the incentives of platforms to subsidize the independent complementors in an equilibrium. We further analyze the incentives of each platform to form a strategic alliance with complementors through contractual exclusivity or technological compatibility, or to integrate with the complementors. Finally, we discuss the welfare consequences of these strategies. |
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