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PLATFORM COMPETITION WITH ‘MUST-HAVE’ COMPONENTS

Authors


  • *We would like to thank Gil Skillman, the Editor and an anonymous referee for very helpful comments. We also thank the organizers and participants of the ‘Competition Policy in Two-Sided Markets’ Conference, June 29 - July 1, 2006, Toulouse.

Abstract

In platform-component systems with indirect network effects, some ‘must-have’ components are so popular with consumers that they create large, discrete indirect network effects when they become available on a platform. For example, ESPN is a must-have component of cable TV platforms. This paper examines how platform market structures determine exclusive versus non-exclusive contracts between platforms and components. It shows that a component provider is more likely to sign exclusive contracts with a single platform if its popularity is high, the platform market share difference is large, and cross-platform indirect network effects are low.

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