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An Economic Analysis of Platform Sharing

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Author Info
Arghya Ghosh
Hodaka Morita

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Abstract

We explore the managerial implications and economic consequences of platform sharing under models of horizontal and vertical product differentiation. By using a common platform across different products, firms can save on fixed costs for platform development. At the same time, platform sharing imposes restrictions on firms' ability to differentiate their products, and this reduces their profitability. It might appear that platform sharing across firms makes consumers worse off because firms cooperate in their product development processes to maximize their joint profit. We find, however, that platform sharing across firms benefits consumers in our framework because it intensifies competition in our horizontal differentiation model, and because it increases the quality of the lower-end product in our vertical differentiation model. We also show new channels through which a merger makes consumers worse off in the presence of platform sharing.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13058.

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Date of creation: Apr 2007
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Handle: RePEc:nbr:nberwo:13058

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General

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  2. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December. [Downloadable!] (restricted)
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  4. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, vol. 46(1), pages 201-211, January. [Downloadable!] (restricted)
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  6. Michael L. Katz, 1986. "An Analysis of Cooperative Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 527-543, Winter.
  7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  8. Arghya Ghosh & Hodaka Morita, 2006. "Platform Sharing in a Differentiated Duopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(2), pages 397-429, 06. [Downloadable!] (restricted)
  9. Choi, Jay Pil, 1993. "Cooperative R&D with product market competition," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 553-571. [Downloadable!] (restricted)
  10. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring. [Downloadable!] (restricted)
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  11. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December. [Downloadable!] (restricted)
  12. Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October. [Downloadable!] (restricted)
  13. Lambertini, Luca & Poddar, Sougata & Sasaki, Dan, 2002. "Research joint ventures, product differentiation, and price collusion," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 829-854, June. [Downloadable!] (restricted)
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