Open Versus Closed Platforms
18 Pages Posted: 23 Apr 2008
Date Written: April 2008
This paper studies an industry in which firms can choose to provide open or closed platforms. Open platforms, as opposed to closed, are extendable so third-party producers can develop extensions for them. Building on a two-sided market model, I show that firms might prefer to commit to keeping their platforms closed despite the fact that opening the platform is costless and open platforms are more valuable to consumers. The reason is that opening the platform may lead to intensified competition for consumers.
Keywords: Platforms, Software, Two-sided Markets
JEL Classification: D40, D42, D43, L10, L12, L13, L14
Suggested Citation: Suggested Citation