Bundling strategies for platforms with an installed base

Abstract

As an emerging platform, hardware/software platforms differ from traditional retail platforms because they require consumers to spend a certain amount of money accessing them. Therefore, an installation base is created. Considering the game console as an example, only consumers with an installation base can purchase a third-party game product on the platform. Otherwise, consumers will be unable to play games. It is generally believed that the existence of an installed base will benefit third-party content providers, and at the same time, it will not benefit platform manufacturers. Therefore, it can be observed that game platforms often bundle new consoles with third-party content, forcing consumers with installed bases to purchase a new console. Thus, building a model to study the impact of the installation based on the bundling strategy of the video game platform and to analyze the optimal pricing and profit under different bundling strategies is meaningful. Our study analyzed the impact of the installed base under different bundling strategies and found that the installed base dose not always have a positive impact on platform manufacturers. The study also analyzed the equilibrium of competing platform manufacturers and found that, under certain conditions, both the bundling-bundling strategy and the unbundling-unbundling strategy may exist as equilibrium.