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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

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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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Publisher 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;

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

Cited by:
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  1. Kenneth S. Corts & Mara Lederman, 2007. "Software Exclusivity and the Scope of Indirect Network Effects in the U.S. Home Video Game Market," Working Papers 07-43, NET Institute, revised Nov 2007. [Downloadable!]
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This page was last updated on 2009-11-13.

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