Platform Competition with Asymmetric Access Costs

Abstract

We analyze competition between platforms under asymmetric access costs. Agents that belong to one platform do not pay access costs, but agents that participate in other platforms pay a positive access cost. An example is competition between application stores for mobile smart phones, because application users can pay for additional access costs to download and install third-party application stores instead of using preinstalled application stores. The equilibrium prices are much more complicated than those of symmetric access cost case which is analyzed by Armstrong (2006). It is clear that asymmetric access costs will reduce the equilibrium market shares of the platform with the disadvantage on both sides. However, the effects of asymmetric access costs on the equilibrium prices of both sides are ambiguous and rely mainly upon the relative levels of two different cross network effects.