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Platform competition with complementary products

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  • Carrillo, Juan D.
  • Tan, Guofu

Abstract

We characterize the pricing structure in a model of platform competition in which two firms offer horizontally differentiated platforms and two sets of complementors offer products that are exclusive to each platform, respectively. We highlight the presence of indirect network effects: platforms and complementors benefit from the quality and number of firms in their group and suffer from the quality and number of firms in the rival’s group through their effects on prices and market share. We then determine the incentives of platforms to subsidize the independent complementors in an equilibrium. We further analyze the incentives of each platform to form a strategic alliance with complementors through contractual exclusivity or technological compatibility, or to integrate with the complementors. Finally, we discuss the welfare consequences of these strategies.

Suggested Citation

  • Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:indorg:v:77:y:2021:i:c:s0167718721000345
    DOI: 10.1016/j.ijindorg.2021.102741
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    Cited by:

    1. Shota Ichihashi, 2021. "Competing data intermediaries," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 515-537, September.

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    More about this item

    Keywords

    Platform competition; Complementors; Two-sided markets; Compatibility; Integration; Exclusivity; Subsidy;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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