Platform Sharing in a Differentiated Duopoly

33 Pages Posted: 8 May 2006

See all articles by Hodaka Morita

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Arghya Ghosh

UNSW Australia Business School, School of Economics

Abstract

Platform sharing across manufacturers has become common practice in the automobile industry. Although platform sharing reduces the degree of product differentiation, manufacturers can reduce their procurement costs by taking advantage of the commonality of components. We investigate this trade-off through analyzing a model that incorporates manufacturer-supplier relationships into a differentiated duopoly model, and find an interesting inverse relationship between the advantage of platform sharing and manufacturers' costs to communicate with their potential suppliers. We also explore welfare consequences of the Internet trading exchanges by considering an extension that allows the manufacturers to jointly establish a business-to-business electronic marketplace. Platform sharing across manufacturers has become common practice in the automobile industry. Although platform sharing reduces the degree of product differentiation, manufacturers can reduce their procurement costs by taking advantage of the commonality of components. We investigate this trade-off through analyzing a model that incorporates manufacturer-supplier relationships into a differentiated duopoly model, and find an interesting inverse relationship between the advantage of platform sharing and manufacturers' costs to communicate with their potential suppliers. We also explore welfare consequences of the Internet trading exchanges by considering an extension that allows the manufacturers to jointly establish a business-to-business electronic marketplace.

Suggested Citation

Morita, Hodaka and Ghosh, Arghya, Platform Sharing in a Differentiated Duopoly. Journal of Economics & Management Strategy, Vol. 15, No. 2, pp. 397-429, Summer 2006, Available at SSRN: https://ssrn.com/abstract=899189 or http://dx.doi.org/10.1111/j.1530-9134.2006.00105.x

Hodaka Morita

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Arghya Ghosh

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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