Efficiency and the Provision of Open Platforms
17 Pages Posted: 29 Apr 2008
Date Written: April 2008
Private firms may not have efficient incentives to allow third-party producers to access their platform or develop extensions for their products. Based on a two-sided market model, I discuss two reasons for why. First, a private firm may not be able to internalize all benefits from cross-group externalities arising with third-party extensions. Second, firms may have strategic incentives to shut out third-parties because it relaxes competition.
Keywords: Platforms, Two-sided Markets, Open versus Closed
JEL Classification: D40, L10
Suggested Citation: Suggested Citation