A Ram Kim

Type

Text

Type

Dissertation

Advisor

Tauman, Yair | Brusco, Sandro. | Liu, Ting | Lopomo, Giuseppe.

Date

2017-08-01

Keywords

Compatibility | Economics | Network externality | Platform competition | Switching costs | Two-sided Market

Department

Department of Economics.

Language

en_US

Source

This work is sponsored by the Stony Brook University Graduate School in compliance with the requirements for completion of degree

Identifier

http://hdl.handle.net/11401/78155

Publisher

The Graduate School, Stony Brook University: Stony Brook, NY.

Format

application/pdf

Abstract

This dissertation analyzes the effect of compatibility and switching costs in the context of a two-sided market model. In the two-sided market, the platform provides service which enables two sets of participants, consumers and content developers, to interact. Contrary to the common prediction about compatibility in a one-sided market, compatibility might be harmful to social welfare in the two-sided market. Furthermore, switching cost is closely related to compatibility between platforms and it is magnified compared to the one- sided market. Therefore, applying one-sided analysis to the two-sided market may easily lead to incorrect conclusions. In the first essay of this dissertation, I model competition between two platforms in a two-period model. I explicitly consider the situation in which incompatibility brings about switching cost for the consumer. I show that compatibility increases the price for both consumers and content developers. Differently from a market with direct network effect, where compatibility always increases network benefit, consumers and content developers may be worse off under compatibility in the two-sided market. In the second essay of this dissertation, I build a model of dynamic duopoly competition when two-sided platforms face overlapping generations of consumers. I introduce a stochastic process of the cost of compatibility which evolves according to a Markov process. I focus on finding linear Markov perfect equilibria by solving stochastic dynamic programming numerically. The results show that a platform with a large installed base charges higher prices and obtains a larger market share and profit in the short run. I also examine the effect of compatibility and switching costs on social welfare and policy implications. | 88 pages

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