Strategy for complementor under platform owner’s entry with vertically differentiated content

Abstract

Complementors who provide content on platforms are increasingly threatened by the entry of platform owners. Platform owners may enter the content market through offering vertically differentiated content either by self producing or hiring the complementor to produce. We build a game-theoretic model to analyze the platform owner’s entry decisions and the complementor’s response strategy considering the effects of demand complementarity, vertical content differentiation and consumer heterogeneity to both players’ strategies. We find that vertical content differentiation relaxes boundary conditions of entry, and it is more obvious when the platform owner has advantage in content value. However, we show that though the complementor may hold advantages on content value, price, or sales volume, it faces dependent dilemma once entry happens. Further, we demonstrate that second-party cooperation may mitigate the dependent dilemma and create a “win–win” situation through leveraging the platform owner’s efficiency in marketing and the complementor’s efficiency in content producing.