Platform competition with complementary products

Juan D. Carrillo and Guofu Tan

International Journal of Industrial Organization, 2021, vol. 77, issue C

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.

Keywords: Platform competition; Complementors; Two-sided markets; Compatibility; Integration; Exclusivity; Subsidy (search for similar items in EconPapers)
JEL-codes: L13 L15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:77:y:2021:i:c:s0167718721000345

DOI: 10.1016/j.ijindorg.2021.102741

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