We study software platforms for which the total amount that users spend depends on the twosidedpricing strategy of the platform firm, and on the pricing strategy of application developers.When setting prices, developers may be constrained by one of two margins: the demand marginand the competition margin. By analyzing how these margins affect pricing strategies we findsome conditions which explain features of the market of operating systems and its differenceswith the one corresponding to the video consoles. The problem that arises when the platformdoes not set prices (as an open platform) is considered. We show that policy makers shouldpromote open source in operating systems platforms but not necessarily in video consoles. Wealso analyze the incentives for a platform to integrate with applications as a function of theextent of substitutability among them and provide a possible explanation for the observed fact ofvertical disintegration in these industries.
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