The economics of platform competitioncompatibility, standardization and piracy

Résumé

This thesis studies the platform competition with compatibility, standardization and piracy. In the first chapter we study the role played by expectations, the strength of the network externality and product differentiation in the strategic decisions of the platforms regarding compatibility and price competition. The decision problem is modeled as a two-stage game. In the first stage platforms simultaneously and non-cooperatively choose the degree of compatibility and in the second stage platforms compete in prices. More specifically, we solve a two-stage game in which duopolists decide simultaneously and non cooperatively the degree of compatibility between their products and they compete in prices. We obtain the following results: When the expectations about the network size are symmetrical, the high quality platform always choose compatibility and fix a higher price. The result change when consumers have different expectations about the networks size: If the difference between qualities is minimal, only the company whose expectations of network size are larger serves the market. If the products are minimally vertically differentiated, quality becomes irrelevant and externalities become decisive. When the difference between qualities increases, perhaps the degree of compatibility chosen by the high quality platfrom is not necessarily higher than the degree of compatibility choosen by the low quality platform and vice versa. The second chapter examines the role played by consumers¿ expectations, the strength of the direct network externality, the indirect network externalities associated with the number of complements and product differentiation in the strategic decisions of competing platforms i) regarding the adoption of a common standard, ii) the decisions on innovation and iii) market competition. In the first part of the paper we consider fulfilled expectations (when the consumers expect that both platforms takes part in the market). In the second part of the chaper we analyze the extreme case of expectations on a single platform (when the consumers expect that only one platform take part in the market). A total welfare analysis is undertaken under the fulfilled expectations setting. We observe two effects, the variety and the price effect; as a consequence, consumer surplus is always higher without the standard. Finally, we study the software piracy problem in a two-sided market framework. Platforms compete to attract software developers and consumers in four types of markets, they simultaneously choose the price charged to consumers and the license fee charged to software developers. We consider first with when consumers can be multi-homing and the developers are single-homing , then we analyze when whole the market is single-homing, thirdly when developers can be multi-homing and consumers are single-homing and finally when whole the market is multi-homing. Piracy appears in the developers market, therefore consumers in this market can buy the original software or get a copy. The software developers have the possibility to invest in an anti-piracy mechanism. The second part of the chapter provides a total welfare appraisal under the threat of piracy and calculates the social optimum when a social planner regulates the consumers and the developers market.