Bundling Information Goods of Decreasing Value
Management Science
An economic view of information systems
Decision Support Systems - Special issue: Economics and information systems
Network externalities, layered protection and IT security risk management
Decision Support Systems
Oligopolistic price competition and adverse price effect in online retailing markets
Decision Support Systems
Service Adoption and Pricing of Content Delivery Network (CDN) Services
Management Science
Decision Support Systems - Special issue: Economics and information systems
A hedonic study of network effects in the market for word processing software
Decision Support Systems - Special issue: Economics and information systems
Pricing strategies for tied digital contents and devices
Decision Support Systems
Digital goods and markets: Emerging issues and challenges
ACM Transactions on Management Information Systems (TMIS)
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This paper explores the role of exclusive contracting between vendors of platforms (such as video game consoles) and vendors of complements (such as video games). The main questions of interest are: When do we observe complement exclusivity, and what is the impact of exclusive contracting on prices, profits and efficiency? We answer these questions by developing a model of competition between platforms in an industry with indirect network effects, and deriving some insightful analytical and numerical results. While complement vendors have natural incentives to be available on all platforms, we establish conditions under which they can be contracted for exclusive supply on a single platform. Exclusivity eases competition in the platform market and can significantly help increase a platform's adoption. However, exclusivity choice presents a key trade-off for the complement vendor-a larger platform offers access to a larger market, but also more competition, as compared to a smaller platform. We find that exclusivity is more likely in the nascent and very mature stages of the platform market, whereas non-exclusivity is more likely in the intermediate stages. Interestingly, our numerical analysis suggests that a complement vendor might sometimes prefer being exclusive on the smaller platform, rather than the larger one.