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Platform Competition with “Must-Have” Components

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Author Info

  • Christiaan Hogendorn

    ()
    (Economics Department, Wesleyan University)

  • Ka Yat Yuen

Abstract

In platform-component systems with indirect network effects, some components are so popular with consumers that they have strong bargaining positions and can be regarded as “must-have” from the point of view of the platform. For example, ESPN is a must-have component of cable TV platforms. This paper presents a theoretical model to assess how platform market structures affect the likelihood of exclusive versus non-exclusive contracts between platforms and components. The model evaluates the combined impacts of (i) the popularity of the component, (ii) the platform market share difference and (iii) platform technological compatibility on the platform-component contractual arrangements. It shows that a component provider is more likely to sign exclusive access contracts with a single platform if its popularity is high, the platform market share difference is large, and platform compatibility is low.

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File URL: http://repec.wesleyan.edu/pdf/chogendorn/2004003_hogendorn.pdf
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Bibliographic Info

Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2004-003.

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Length: 42 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:wes:weswpa:2004-003

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Related research

Keywords: network effects; bargaining; platforms;

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References

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  1. Chou, Chien-fu & Shy, Oz, 1996. "Do consumers gain or lose when more people buy the same brand," European Journal of Political Economy, Elsevier, vol. 12(2), pages 309-330, September.
  2. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
  3. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1351-64, November.
  4. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  5. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 8(2), pages 259-270, June.
  6. Clements, Matthew T., 2004. "Direct and indirect network effects: are they equivalent?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(5), pages 633-645, May.
  7. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  8. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 85-103, March.
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Cited by:
  1. Evens, Tom, 2010. "Challenging content exclusivity in network industries: the case of digital broadcasting," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 12, International Telecommunications Society (ITS).
  2. Anna D'Annunzio, 2013. "Vertical Integration in Two-Sided Markets: Exclusive Provision and Program Quality," DIAG Technical Reports 2013-16, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  3. Subhasish M. Chowdhury & Stephen Martin, 2010. "Exclusivity and Exclusion on Platform Markets," Purdue University Economics Working Papers 1254, Purdue University, Department of Economics.
  4. James E. Prieger & Wei‐Min Hu, 2012. "Applications Barrier To Entry And Exclusive Vertical Contracts In Platform Markets," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 435-452, 04.

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