Joacim Tåg: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden, and Swedish School of Economics and Business Administration
Abstract: This paper studies an industry in which firms can choose to provide open or closed platforms. Open platforms, as opposed to closed, are extendable so third-party producers can develop extensions for them. Building on a two-sided market model, I show that firms might prefer to commit to keeping their platforms closed despite the fact that opening the platform is costless and open platforms are more valuable to consumers. The reason is that opening the platform may lead to intensified competition for consumers.
17 pages, First version: April 12, 2008. Revised: August 28, 2008. Earlier revisions: August 28, 2008.
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