Competing Platforms and Third Party Application Developers
Research Institute of Industrial Economics (IFN)
June 1, 2009
Communications & Strategies, No. 74, p. 95, 2nd quarter 2009
Technology firms often decide between being open or closed to third party application development. Building on a two-sided market model with competing platforms, I show that firms might prefer to restrict third party application development despite the fact that allowing it is free and increases the value of the product to consumers. The reason is that restricting third party application development removes network effects and thereby relaxes competition between platforms. From a social welfare perspective, firms sometimes restrict third party application development even though total welfare would be higher if development was possible.
Number of Pages in PDF File: 20
Keywords: platforms, software, two-sided markets
JEL Classification: O31, O32, O33Accepted Paper Series
Date posted: February 28, 2010
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