Working paper

Creating platforms by hosting rivals

Andrei Hagiu, Bruno Jullien, and Julian Wright

Abstract

We explore conditions under which a multiproduct firm can profitably turn itself into a platform by "hosting rivals", i.e. by inviting rivals to sell products or services on top of its core product. Hosting eliminates the additional shopping costs to consumers of buying a specialist rival's competing version of the multiproduct firm's non-core product. On the one hand, this makes it easier for the rival to compete on the non-core product. On the other hand, hosting turns the rival from a pure competitor into a complementor: the value added by its product now helps raise consumer demand for the multi-product firm's core product. As a result, hosting can be both unilaterally profitable for the multi-product firm and jointly profitable for both firms.

JEL codes

  • D4: Market Structure and Pricing
  • L1: Market Structure, Firm Strategy, and Market Performance
  • L5: Regulation and Industrial Policy

Reference

Andrei Hagiu, Bruno Jullien, and Julian Wright, Creating platforms by hosting rivals, TSE Working Paper, n. 18-970, November 2018.

See also

Published in

TSE Working Paper, n. 18-970, November 2018