Publication: Pricing strategies in software platforms : video consoles vs. operating systems
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2007-05
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Abstract
We study software platforms for which the total amount that users spend depends on the twosided
pricing strategy of the platform firm, and on the pricing strategy of application developers.
When setting prices, developers may be constrained by one of two margins: the demand margin
and the competition margin. By analyzing how these margins affect pricing strategies we find
some conditions which explain features of the market of operating systems and its differences
with the one corresponding to the video consoles. The problem that arises when the platform
does not set prices (as an open platform) is considered. We show that policy makers should
promote open source in operating systems platforms but not necessarily in video consoles. We
also analyze the incentives for a platform to integrate with applications as a function of the
extent of substitutability among them and provide a possible explanation for the observed fact of
vertical disintegration in these industries.
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Two-sided markets, Technology platforms, Complements, Vertical disintegration, Competition policy