Platform Competition with “Must-Have” Components
AbstractIn 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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Bibliographic InfoPaper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2004-003.
Length: 42 pages
Date of creation: Sep 2004
Date of revision:
network effects; bargaining; platforms;
Find related papers by JEL classification:
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
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- 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).
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