24 Pages Posted: 24 May 2011 Last revised: 10 Sep 2014
Date Written: January 23, 2011
This paper examines the pricing of mobile applications when application providers can either supply consumers directly or through a mobile platform (such as a smart phone or tablet). It is demonstrated that when platform access (i.e., purchasing a device) takes place in advance of application pricing, a non-trivial unravelling problem exists that rules out selling platform access at a positive price. Consequently, all platform revenues come from sharing application provider revenues. It is demonstrated that several restrictive conditions on application providers, such as most favoured customer clauses, can allow the platform provider to earn more profits and charge a positive access price increasing the likelihood the platform is provided.
Keywords: platform, two-sided markets, complements, most favoured customer clause
JEL Classification: L17, L32
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