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American Economic Review: Vol. 103 No. 7 (December 2013)

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Vertical Integration and Exclusivity in Platform and Two-Sided Markets

Article Citation

Lee, Robin S. 2013. "Vertical Integration and Exclusivity in Platform and Two-Sided Markets." American Economic Review, 103(7): 2960-3000.

DOI: 10.1257/aer.103.7.2960

Abstract

This paper measures the impact of vertically integrated and exclusive software on industry structure and welfare in the sixth-generation of the US video game industry (2000-2005). I specify and estimate a dynamic model of both consumer demand for hardware and software products, and software demand for hardware platforms. I use estimates to simulate market outcomes had platforms been unable to own or contract exclusively with software. Driven by increased software compatibility, hardware and software sales would have increased by 7 percent and 58 percent and consumer welfare by $1.5 billion. Gains would be realized only by the incumbent, suggesting exclusivity favored the entrant platforms.

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Online Appendix (617.94 KB) | Download Data Set (100.28 KB) | Author Disclosure Statement(s) (81.21 KB)

Authors

Lee, Robin S. (NYU)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
L13: Oligopoly and Other Imperfect Markets
L22: Firm Organization and Market Structure
L63: Microelectronics; Computers; Communications Equipment
L86: Information and Internet Services; Computer Software


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