Network interoperability and platform competition

Jinglei Huang (), Guofu Tan (), Tat-How Teh () and Junjie Zhou ()
Additional contact information
Jinglei Huang: Tsinghua University, School of Social Science, Mingzhai Building, Haidian District, Beijing, China
Guofu Tan: University of Southern California, 3620 South Vermont Avenue KAP Hall, 300, Los Angeles, CA 90089-0253, United States
Tat-How Teh: Nanyang Technological University, Division of Economics, 48 Nanyang Ave, 639818 Singapore
Junjie Zhou: Tsinghua University, School of Economics and Management, 30 Shuangqing Road, Haidian District, Beijing, China

No 24-03, Working Papers from NET Institute

Abstract: Network interoperability between platforms often comes in various possible configurations, including industry-wide, coalition-based, and pairwise interoperability arrangements. We present an approach to incorporate generalized configurations of network interoperability into the analysis of price competition among any number of symmetric platforms. Specifically, the network benefit received by consumers on each platform increases with the effective network size of the platform, which is determined by an interoperability matrix reflecting the connections between platforms. Four key factors—the strength of interoperability, the shape of the network externality function, the interoperability configuration, and the number of platforms—jointly determine the equilibrium prices. Our findings show, among other things, that increased interoperability strength tends to reduce prices and benefit consumers when: (i) the network externality function exhibits strong increasing returns to scale, or (ii) the interoperability configuration includes multiple coalitions.

Keywords: platforms; interoperability; interconnectivity; compatibility; data sharing; learning curve; coalitions (search for similar items in EconPapers)
JEL-codes: D43 L15 L20 L50 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-inv, nep-mic, nep-pay, nep-reg and nep-sea
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