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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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    References listed on IDEAS

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    Cited by:

    1. Jie Zhang & Lingfeng Dong & Ting Ji, 2023. "The Diffusion of Competitive Platform-Based Products with Network Effects," Sustainability, MDPI, vol. 15(11), pages 1-18, May.
    2. Axel Gautier & Leonardo Madio & Shiva Shekhar, 2025. "Network Externalities and Platform Strategy: Agency, Bundles Entry, and Integration," CESifo Working Paper Series 11711, CESifo.
    3. Shota Ichihashi, 2021. "Competing data intermediaries," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 515-537, September.
    4. Lina Ma & Wanying Zhao & Longzhu Dong & Yushen Du, 2023. "Platforms Competition: An Ecosystem-View Analysis Based on Evolutionary Game Theory," SAGE Open, , vol. 13(4), pages 21582440231, December.

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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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