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Platform Competition with “Must-Have” Components

  • Christiaan Hogendorn

    ()

    (Economics Department, Wesleyan University)

  • Ka Yat Yuen

In platform-component systems with indirect network effects, some components are so popular with consumers that they have strong bargaining positions and can be regarded as “must-have” from the point of view of the platform. For example, ESPN is a must-have component of cable TV platforms. This paper presents a theoretical model to assess how platform market structures affect the likelihood of exclusive versus non-exclusive contracts between platforms and components. The model evaluates the combined impacts of (i) the popularity of the component, (ii) the platform market share difference and (iii) platform technological compatibility on the platform-component contractual arrangements. It shows that a component provider is more likely to sign exclusive access contracts with a single platform if its popularity is high, the platform market share difference is large, and platform compatibility is low.

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File URL: http://repec.wesleyan.edu/pdf/chogendorn/2004003_hogendorn.pdf
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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2004-003.

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Length: 42 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:wes:weswpa:2004-003
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Web page: http://www.wesleyan.edu/econ/

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  1. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
  2. Clements, Matthew T., 2004. "Direct and indirect network effects: are they equivalent?," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 633-645, May.
  3. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  4. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  5. Chou, Chien-fu & Shy, Oz, 1996. "Do consumers gain or lose when more people buy the same brand," European Journal of Political Economy, Elsevier, vol. 12(2), pages 309-330, September.
  6. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
  7. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
  8. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
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