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Device-funded vs Ad-funded Platforms

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  • Federico Etro

Abstract

We analyze device-funded and ad-funded platforms with differentiated ecosystems supporting apps provided under monopolistic competition. The incentives of a device-funded platform in investing in app curation, introducing and pricing its own apps and setting commissions on in-app purchases of external apps are largely aligned with those of consumers, while this is not necessarily the case for the ad-funded platform. In particular, consumers gain from a positive commission set by the device-funded platform because this implies a comparatively lower price of the device, and platform’s apps are introduced and priced internalizing the impact on consumer welfare, perfectly in models of horizontal differentiation and partially in models of vertical differentiation.

Suggested Citation

  • Federico Etro, 2020. "Device-funded vs Ad-funded Platforms," Working Papers - Economics wp2020_19.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2020_19.rdf
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    Cited by:

    1. Jeon, Doh-Shin & Ichihashi, Shota & Kim, Byung-Cheol, 2024. "Mechanism Design and Innovation Incentive for an Ad-Funded Platform," TSE Working Papers 24-1591, Toulouse School of Economics (TSE).
    2. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    3. Etro, Federico, 2023. "Platform competition with free entry of sellers," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    4. Doh-Shin Jeon & Yassine Lefouili & Leonardo Madio, 2021. "Platform Liability and Innovation," Working Papers 21-05, NET Institute.
    5. Paolo Bertoletti, 2021. "A Preference-Based Model of Competition among Platforms," Working Papers 468, University of Milano-Bicocca, Department of Economics.
    6. Federico Etro, 2021. "Product selection in online marketplaces," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 614-637, August.
    7. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    8. Martin Peitz, 2023. "Governance and Regulation of Platforms," CRC TR 224 Discussion Paper Series crctr224_2023_480, University of Bonn and University of Mannheim, Germany.
    9. Steffen, Nico & Wiewiorra, Lukas, 2022. "Device Neutrality: Softwaremarktplätze und mobile Betriebssysteme," WIK Discussion Papers 487, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    10. Gregor Langus & Vilen Lipatov, 2022. "Value Creation by Ad-Funded Platforms," CESifo Working Paper Series 9525, CESifo.
    11. Jay Pil Choi & Doh-Shin Jeon, 2023. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04470490, HAL.
    12. Jean Tirole, 2023. "Competition and the Industrial Challenge for the Digital Age," Post-Print hal-04464905, HAL.
    13. Paolo Bertoletti, 2022. "A Preference-Based Model of Platform Competition," Working Papers 486, University of Milano-Bicocca, Department of Economics.
    14. Steffen, Nico & Kroon, Peter & Abbasi, Faisal Aman & Wiewiorra, Lukas, 2023. "Access charges in software-based termination monopolies," WIK Discussion Papers 514, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    15. D’Annunzio, Anna & Russo, Antonio, 2024. "Platform Transaction Fees and Freemium Pricing," TSE Working Papers 24-1569, Toulouse School of Economics (TSE).
    16. Steffen, Nico & Wiewiorra, Lukas & Kroon, Peter, 2021. "Wettbewerb und Regulierung in der Plattform- und Datenökonomie," WIK Discussion Papers 481, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    17. Jay Pil Choi & Doh-Shin Jeon, 2022. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04018490, HAL.

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    More about this item

    Keywords

    Platforms; business models; monopolistic competition; horizontal differentiation; vertical differentiation.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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