Does a Platform Monopolist Want Competition?

Niedermayer Andras ()
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Niedermayer Andras: Department of Economics, University of Mannheim, L7, 3-5, D-68131 Mannheim, Germany

Review of Network Economics, 2015, vol. 14, issue 1, 1-44

Abstract: We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product variety may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft’s operating system.

Keywords: complementary goods; entry; Microsoft; platforms; price commitment; product variety; two-sided markets; vertical integration (search for similar items in EconPapers)
JEL-codes: D41 D43 L13 L86 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1515/rne-2015-0006

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