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Creating Platforms by Hosting Rivals

Author

Listed:
  • Andrei Hagiu

    (BU - Boston University [Boston])

  • Bruno Jullien

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Julian Wright

    (NUS - National University of Singapore)

Abstract

We explore conditions under which a multiproduct firm can profitably turn itself into a platform by "hosting rivals," that is, by inviting rivals to sell products or services on top of its core product. Hosting eliminates the additional shopping costs to consumers of buying a specialist rival's competing version of the multiproduct firm's noncore product. On the one hand, this makes it easier for the rival to compete on the noncore product. On the other hand, hosting turns the rival from a pure competitor into a complementor: the value added by its product now helps raise consumer demand for the multiproduct firm's core product. As a result, hosting can be both unilaterally profitable for the multiproduct firm and jointly profitable for both firms. This paper was accepted by Joshua Gans, business strategy.

Suggested Citation

  • Andrei Hagiu & Bruno Jullien & Julian Wright, 2020. "Creating Platforms by Hosting Rivals," Post-Print hal-03828336, HAL.
    • Handle: RePEc:hal:journl:hal-03828336
    DOI: 10.1287/mnsc.2019.3356
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    References listed on IDEAS

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    3. Jorge Padilla & Salvatore Piccolo & Helder Vasconcelos, 2020. "On the Private and Social Value of Consumer Data in Vertically-Integrated Platform Markets," CSEF Working Papers 583, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Esther Gal-Or & Qiaoni Shi, 2022. "Designing Entry Strategies for Subscription Platforms," Management Science, INFORMS, vol. 68(10), pages 7597-7613, October.
    5. Markus Reisinger & Jens Schmidt & Nils Stieglitz, 2021. "How Complementors Benefit from Taking Competition to the System Level," Management Science, INFORMS, vol. 67(8), pages 5106-5123, August.
    6. Rabassa, Valérie & Sabri, Ouidade & Spaletta, Claire, 2022. "Conversational commerce: Do biased choices offered by voice assistants’ technology constrain its appropriation?," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    7. Hervas-Drane, Andres & Shelegia, Sandro, 2022. "Price competition with a stake in your rival," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    8. Massimo Motta & Martin Peitz, 2023. "Denial of Interoperability and Future First-Party Entry," CRC TR 224 Discussion Paper Series crctr224_2023_447, University of Bonn and University of Mannheim, Germany.
    9. Federico Etro, 2021. "Product selection in online marketplaces," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 614-637, August.
    10. Padilla, Jorge & Piccolo, Salvatore & Vasconcelos, Helder, 2021. "Should vertically integrated platforms be mandated to share information with their rivals?," Economics Letters, Elsevier, vol. 203(C).
    11. Loginova, Oksana, 2022. "Branded websites and marketplace selling: Competing during COVID-19," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 577-592.
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    13. Rong, Jianxin & Wang, Dazhong, 2023. "Contracting in hierarchical platforms," Economics Letters, Elsevier, vol. 226(C).
    14. Andrei Hagiu & Tat‐How Teh & Julian Wright, 2022. "Should platforms be allowed to sell on their own marketplaces?," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 297-327, June.

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    More about this item

    Keywords

    Multisided platforms; Shopping costs; Bundling; Competition; Complementarity;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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