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Does a Platform Monopolist Want Competition?

Author

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  • Andras Niedermayer

Abstract

We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product diversity may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft's operating system.

Suggested Citation

  • Andras Niedermayer, 2006. "Does a Platform Monopolist Want Competition?," Diskussionsschriften dp0604, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp0604
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    References listed on IDEAS

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    1. Nicholas Economides & Brian Viard, 2003. "Pricing of Complementary Goods and Network Effects," Working Papers 03-12, New York University, Leonard N. Stern School of Business, Department of Economics.
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    6. Joseph Farrell & Nancy T. Gallini, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 673-694.
    7. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2005. "A Survey of the Economic Role of Software Platforms in Computer-based Industries," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 189-224.
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    Cited by:

    1. Niedermayer, Andras, 2013. "On platforms, incomplete contracts, and open source software," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 714-722.

    More about this item

    Keywords

    Platforms; entry; complementary goods; price commitment; product diversity; Microsoft; vertical integration; two-sided markets;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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