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An Economic Analysis of Platform Sharing

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  • Arghya Ghosh
  • Hodaka Morita

Abstract

We explore the managerial implications and economic consequences of platform sharing under models of horizontal and vertical product differentiation. By using a common platform across different products, firms can save on fixed costs for platform development. At the same time, platform sharing imposes restrictions on firms' ability to differentiate their products, and this reduces their profitability. It might appear that platform sharing across firms makes consumers worse off because firms cooperate in their product development processes to maximize their joint profit. We find, however, that platform sharing across firms benefits consumers in our framework because it intensifies competition in our horizontal differentiation model, and because it increases the quality of the lower-end product in our vertical differentiation model. We also show new channels through which a merger makes consumers worse off in the presence of platform sharing.

Suggested Citation

  • Arghya Ghosh & Hodaka Morita, 2007. "An Economic Analysis of Platform Sharing," NBER Working Papers 13058, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13058 Note: IO
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    References listed on IDEAS

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    1. V. Krishnan & Saurabh Gupta, 2001. "Appropriateness and Impact of Platform-Based Product Development," Management Science, INFORMS, vol. 47(1), pages 52-68, January.
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    6. Arghya Ghosh & Hodaka Morita, 2006. "Platform Sharing in a Differentiated Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 397-429, June.
    7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    8. Choi, Jay Pil, 1993. "Cooperative R&D with product market competition," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 553-571.
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    Cited by:

    1. Ke Ding & Jiutang Pan, 2014. "The shanzhai cell phone: platforms and small business dynamics," Chapters,in: The Disintegration of Production, chapter 4, pages 101-126 Edward Elgar Publishing.
    2. Ding, Ke, 2013. "Platforms and firm capabilities : a study of emerging global value chains," IDE Discussion Papers 432, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    3. Bourreau, Marc & Dogan, PInar, 2010. "Cooperation in product development and process R&D between competitors," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 176-190, March.
    4. Mariko Watanabe, 2014. "An analytical framework for the vigorous entry and low price phenomenon," Chapters,in: The Disintegration of Production, chapter 1, pages 26-48 Edward Elgar Publishing.
    5. Huo, Jingjing, 2015. "How Nations Innovate: The Political Economy of Technological Innovation in Affluent Capitalist Economies," OUP Catalogue, Oxford University Press, number 9780198735847.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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