Impact of a Platform Developer's Entry on the Device Manufacturer with Different Power Structures and Revenue Models

Integrating a technology platform with the hardware device has created a platform-hardware business model, which is extended to various industries, such as mobile phones and wearable devices. This paper builds an analytical framework to explore the strategy of the platform developer to enter the market with two revenue models and participate in three competitive power structures with the device manufacturer when facing consumers who have two aspects of valuations for the products: the hardware device and the operating system (OS, a typical technology platform). Anticipating the developer's OS quality, we find that under the demand sharing model, the game with a leader is always more favorable than the simultaneous game, and the high OS quality renders the two parties more advantageous in the game where the rival is the leader. In contrast, both parties can be most profitable only in the game with themselves as the leader under the wholesale model. The developer will surely enter the market while the impact of entering on the manufacturer may change in accordance with various game structures and revenue models. After the developer chooses the optimal OS quality, under the demand sharing model, the entry always benefits the manufacturer when it has not low market power, and both parties can be most profitable from the game with the developer as the leader if the cost difference is small. However, under the wholesale model, there is no optimal game for them and the entry is beneficial to the manufacturer only when the cost difference is large.