Platform Standards, Collusion and Quality Incentives
AbstractThis paper examines how quality incentives are related to the interoperability of competing platforms. Platforms choose whether to operate standardised or exclusively, prior to quality and subsequent price competition. We find that platforms choose a common standard if they can coordinate their quality provision. The actual investment then depends on the cost of quality provision: If rather high, platforms refrain from investment; if rather low, platforms maintain vertically differentiated platforms. The latter case is socially more desirable than exclusivity where platforms do not invest. Nevertheless, quality competition of standardised platforms induces the highest investment and maximum welfare.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 257.
Date of creation: Jan 2009
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two-sided markets; standards; investment in transaction quality;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-22 (All new papers)
- NEP-COM-2009-03-22 (Industrial Competition)
- NEP-NET-2009-03-22 (Network Economics)
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