An Economic Analysis of Platform Sharing

31 Pages Posted: 27 Jun 2007 Last revised: 7 Sep 2010

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Date Written: April 2007

Abstract

We explore the managerial implications and economic consequences of platform sharing under models of horizontal and vertical product differentiation. By using a common platform across different products, firms can save on fixed costs for platform development. At the same time, platform sharing imposes restrictions on firms' ability to differentiate their products, and this reduces their profitability. It might appear that platform sharing across firms makes consumers worse off because firms cooperate in their product development processes to maximize their joint profit. We find, however, that platform sharing across firms benefits consumers in our framework because it intensifies competition in our horizontal differentiation model, and because it increases the quality of the lower-end product in our vertical differentiation model. We also show new channels through which a merger makes consumers worse off in the presence of platform sharing.

Suggested Citation

Ghosh, Arghya and Morita, Hodaka, An Economic Analysis of Platform Sharing (April 2007). NBER Working Paper No. w13058, Available at SSRN: https://ssrn.com/abstract=986908

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Hodaka Morita

Hitotsubashi University - Institute of Economic Research ( email )

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

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