Exclusivity and Control

Journal of Economics and Management Strategy, Volume 20, Number 3, Fall 2011, 679-708

28 Pages Posted: 30 Aug 2007 Last revised: 9 Aug 2016

Andrei Hagiu

Massachusetts Institute of Technology - Sloan School of Management

Robin S. Lee

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2010

Abstract

We analyze platform competition for content in the presence of strategic interactions between content distributors and content providers. We provide a model of bargaining and price competition within these industries, and show that whether or not a piece of content ends up exclusive to one platform depends crucially on whether or not the content provider maintains control over the pricing of its own good. If the content provider sells its content outright and relinquishes control over its price, the content will tend to be exclusive unless there are sufficient market expansion effects. On the other hand, if the content provider maintains control of its pricing, the strategic interaction between prices set by the content provider and by the platforms leads to a non-monotonic relationship between exclusivity and content quality: both high and low quality content will multihome and join both platforms, but there will be a range of quality for which content will be exclusive despite foreclosing itself from selling to a portion of the market. In addition, we show that contrary to standard results on double marginalization and pricing of complementary goods, a platform who already has exclusive access to content may prefer to relinquish control over pricing and associated revenues from the content to the content provider in order to reduce price competition at the platform level.

Suggested Citation

Hagiu, Andrei and Lee, Robin S., Exclusivity and Control (July 20, 2010). Journal of Economics and Management Strategy, Volume 20, Number 3, Fall 2011, 679-708. Available at SSRN: https://ssrn.com/abstract=1010669 or http://dx.doi.org/10.2139/ssrn.1010669

Andrei Hagiu (Contact Author)

Massachusetts Institute of Technology - Sloan School of Management ( email )

MIT Sloan School of Management
100 Main Street, E62-313
Cambridge, MA 02142
United States
617-715-4844 (Phone)

HOME PAGE: http://andreihagiu.com/

Robin S. Lee

Harvard University - Department of Economics ( email )

1805 Cambridge St.
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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