Applications Barriers to Entry and Exclusive Vertical Contracts in Platform Markets

James E. Prieger () and Wei-Min Hu ()
Additional contact information
Wei-Min Hu: Peking University Shenzhen Graduate School of Business

No 07-46, Working Papers from NET Institute

Abstract: Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to applications barriers to entry. Theory suggests that exclusive contracts in vertical relationships between the platform provider and software supplier can heighten the entry barriers. We test these theories in the home video game market. We measure the impact on hardware demand of the indirect network effects from software. We find that although network effects are present, the marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to a market structure dominated by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting.

Keywords: antitrust; vertical restrictions; exclusive contracts; platform markets; home video game industry; software and hardware markets; two-sided markets (search for similar items in EconPapers)
JEL-codes: L14 K21 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-law and nep-mic
Date: 2007-11

Downloads: (external link)
http://www.netinst.org/Prieger-Hu_07-46.pdf (application/pdf)
no

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Working Papers from NET Institute
Series data maintained by Nicholas Economides ().