Compatibility and distribution strategies of asymmetric competing digital platforms

Abstract

AbstractWe develop a game theoretic model to study the compatibility and distribution decisions of two asymmetric competing platform owners. It is found that there are two equilibrium distribution structures for the two platform firms. Then a Pareto optimality distribution structure for the two firms is discovered. We proceed to discuss the platform's compatibility decision under the equilibrium distribution structures, and find that the equilibrium compatibility decisions depend on the average royalty. We further examine the impact of firm's distribution decisions over their compatibility decisions. Finally, we discuss how retailers will benefit from platform owner's compatibility decisions.