Exclusive Licensing in Complementary Network Industries

50 Pages Posted: 11 Apr 2007 Last revised: 31 Aug 2014

See all articles by Ravi Mantena

Ravi Mantena

University of Rochester - Simon Business School

Ramesh Shankar

University of Connecticut - School of Business

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business

Date Written: December 2007

Abstract

This paper develops and analyzes a model of competition between platforms in an industry with indirect network effects, with a specific focus on complementary product exclusivity. The objective is to understand the conditions under which complement exclusivity can be observed and analyze the impact of exclusivity on industry outcomes. We find that the stage of platform market maturity and the asymmetry between the installed bases of platforms are critical determinants of exclusivity. Exclusivity is much more likely in the nascent stages of the platform market, but sometimes results in the very mature stages as well. Non-exclusivity is the most likely outcome in the intermediate stages. In the nascent stages, the bigger platform secures exclusivity, while in the mature stages, surprisingly there exist conditions under which the smaller platform is able to secure exclusivity. The stage of the platform market maturity also has a critical impact on the division of surplus between platforms and complement developers. With exclusive contracting, high quality complements that have a strong impact on consumer's platform adoption decisions often become competitive necessities and appropriate most of the surplus generated.

Keywords: Exclusivity, Complements, Network Effects, Competition, Platforms

Suggested Citation

Mantena, Ravi and Shankar, Ramesh and Viswanathan, Siva, Exclusive Licensing in Complementary Network Industries (December 2007). NET Institute Working Paper No. 07-04. Available at SSRN: https://ssrn.com/abstract=979330 or http://dx.doi.org/10.2139/ssrn.979330

Ravi Mantena (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Ramesh Shankar

University of Connecticut - School of Business ( email )

2100 Hillside Road
U-1041
Storrs, CT 06269-2041
United States
860-486-5217 (Phone)
860-486-4839 (Fax)

HOME PAGE: http://www.sramesh.com/

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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