Does a Platform Monopolist Want Competition?

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Does a Platform Monopolist Want Competition?

Author Info

Andras Niedermayer

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Andras Ferenc 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.

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0604.

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Date of creation: Dec 2006
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Handle: RePEc:ube:dpvwib:dp0604

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Find related papers by JEL classification:
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
D43 - Microeconomics - - Market Structure and Pricing - - - 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

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-01-13 (All new papers)
NEP-BEC-2007-01-13 (Business Economics)
NEP-COM-2007-01-13 (Industrial Competition)
NEP-MIC-2007-01-13 (Microeconomics)
NEP-NET-2007-01-13 (Network Economics)

References listed on IDEAS
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