Application Compatibility and Affiliation in Two-Sided Markets


This paper analyzes the decisions on application compatibility by platforms and the endogenous affiliations of two different groups (content providers and users). We find that even if the cost of achieving application compatibility is sufficiently low, compatibility is not an equilibrium unless the cost is zero. We also find that asymmetric equilibria exist with regard to other content, where one platform chooses incompatibility while the other platform chooses compatibility and that, these asymmetric equilibria are harmful to content providers and users compared with the situation of compatibility.

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