PLATFORM COMPETITION WITH ‘MUST‐HAVE’ COMPONENTS* |
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| Authors: | CHRISTIAAN HOGENDORN STEPHEN KA YAT YUEN |
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| Institution: | 1. Economics Department, Wesleyan University, Middletown, Connecticut 06459, U.S.A.e‐mail:chogendorn@wesleyan.edu;2. Och‐Ziff Capital Management HK Ltd., Hong Konge‐mail:stephen.yuen@gs.com |
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| Abstract: | In platform‐component systems with indirect network effects, some ‘must‐have’ components are so popular with consumers that they create large, discrete indirect network effects when they become available on a platform. For example, ESPN is a must‐have component of cable TV platforms. This paper examines how platform market structures determine exclusive versus non‐exclusive contracts between platforms and components. It shows that a component provider is more likely to sign exclusive contracts with a single platform if its popularity is high, the platform market share difference is large, and cross‐platform indirect network effects are low. |
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