Competing Platforms and Third Party Application Developers

Tåg, Joacim

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Competing Platforms and Third Party Application Developers

Communications & Strategies, No. 74, p. 95, 2nd quarter 2009

20 Pages Posted: 28 Feb 2010

See all articles by Joacim Tåg

Joacim Tåg

Research Institute of Industrial Economics (IFN); Hanken School of Economics

There are 4 versions of this paper

Date Written: June 1, 2009

Abstract

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.

Keywords: platforms, software, two-sided markets

JEL Classification: O31, O32, O33

Suggested Citation: Suggested Citation

Tåg, Joacim, Competing Platforms and Third Party Application Developers (June 1, 2009). Communications & Strategies, No. 74, p. 95, 2nd quarter 2009, Available at SSRN: https://ssrn.com/abstract=1559094