Platform competition, compatibility, and social efficiency
AbstractKatz and Shapiro (1985) study systems compatibility in settings with one-sided platforms and direct network externalities. We consider systems compatibility in settings with two-sided platforms and indirect network externalities to develop an explanation why markets with two-sided platforms are often characterized by incompatibility with one dominant player who may subsidize access to one side of the market. We find that incompatibility gives rise to asymmetric equilibria with a dominant platform that earns more than under compatibility. We also find that incompatibility generates larger total welfare than compatibility when horizontal differences between platforms are small.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/798.
Length: 54 pages
Date of creation: 17 Jun 2009
Date of revision:
network; industries; platforms; markets;
Other versions of this item:
- Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-14 (All new papers)
- NEP-COM-2009-11-14 (Industrial Competition)
- NEP-IND-2009-11-14 (Industrial Organization)
- NEP-MIC-2009-11-14 (Microeconomics)
- NEP-NET-2009-11-14 (Network Economics)
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- Sagit Bar-Gill, 2013. "Game of Platforms: Strategic Expansion in Two-Sided Markets," Working Papers 13-12, NET Institute.
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