Exclusivity and Control

30 Pages Posted: 24 Jul 2011

See all articles by Andrei Hagiu

Andrei Hagiu

Boston University - Questrom School of Business

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: Fall 2011

Abstract

We model competition between content distributors (platforms) for content providers, and show that whether or not content is exclusive or “multihomes” depends crucially on whether or not content providers maintain control over their own pricing to consumers: if content providers sell their content outright and relinquish control, they will tend to be exclusive; on the other hand, if content providers maintain control and only “affiliate” with platforms, then multihoming is sustainable in equilibrium. We show that the outcome under affiliation depends on the tradeoff between platform rent extraction (which increases in exclusivity) and content rent extraction (which increases in multihoming), and demonstrate that the propensity for exclusivity can be increasing, decreasing, or even nonmonotonic in content quality. Finally, if a content provider internalizes the effect of its own price on platform demand, we prove that a platform that already has exclusive access to content may prefer to relinquish control over content pricing 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 (Fall 2011). Journal of Economics & Management Strategy, Vol. 20, Issue 3, pp. 679-708, 2011, Available at SSRN: https://ssrn.com/abstract=1893359 or http://dx.doi.org/10.1111/j.1530-9134.2011.00302.x

Andrei Hagiu (Contact Author)

Boston University - Questrom School of Business ( email )

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Boston, MA MA 02215
United States

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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