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AbstractThis paper develops and analyzes a model of competition between platforms in an industry with indirect network effects, with a specific focus on complementary product exclusivity. The objective is to understand the determinants of exclusivity and explore its effects on competition. We find that the stage of platform market maturity and the asymmetry between the installed bases of platforms are critical determinants of exclusivity. Exclusivity is the dominant outcome in the nascent stage of the platform market and is sometimes the outcome in mature stages as well, while non-exclusivity is the usual outcome in the intermediate stages. In the nascent stages, the bigger platform secures exclusivity, while in the mature stages it is the smaller platform.
M arket share contracts, a form of loyalty discounts, where the discount is contingent on the buyer meeting or exceeding a target share of total procurement, are used in many business to business (B2B) settings. We study the impact of such contracts on demand allocation, prices, and welfare in a setting where a single central B2B buyer procures multiple units of a product on behalf of a set of users with heterogeneous preferences. We find that linear pricing creates a demand distortion, which goes away with the use of market share contracts. These contracts serve as strategic tools for vendors whose products are strongly preferred by a substantial fraction of the users in the buying organization to shift the locus of competition and extract away rents from weaker rivals, and sometimes from buyers. The impact of such contracts on the welfare of the buyers is therefore ambiguous, but when these contracts are used, the overall surplus goes up as disutility from demand distortion is avoided. While both quantity threshold contracts and two-part tariffs can replicate the efficiency properties of market share contracts when demand is deterministic, they cannot guarantee the avoidance of demand distortion when buyer demand is uncertain.
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