Competing Platforms

Why do competing platforms or networks exist? This paper focuses on instances where the value of a platform depends on the adoption decisions of a small number of firms, and analyzes the strategic competition among platforms to get this oligopolistic side on-board. I study a bilateral contracting game among platforms and firms that allows for general externalities across both contracting and non-contracting partners, and examine when a market will sustain a single or multiple platforms. When firms can join only one platform, I provide conditions under which market-tipping and/or market-splitting equilibria may exist. In particular, even without coordination failure, congestion effects, or firm multi-homing, multiple platforms can sustain in equilibrium despite being inefficient from the perspective of the contracting parties. Expanding the contracting space to include contingent contracts may exacerbate this inefficiency.