Ecosystems and Complementary Platforms

Motivated by several examples, including Internet of Things patent licensing, we analyze a model where one or more complementary platforms choose prices for a group of devices that exhibit demand externalities. We show how prices depend on each device's Katz-Bonacich centrality in a network defined by the demand externalities, and how the relevant network differs for an ecosystem monopolist, a social planner, or a group of complementary platforms. For the latter case, we revisit Cournot's analysis of complementary monopolies and show that in our setting, it is possible for the total price of a particular device to decline when the number of monopoly platforms increases. Finally, we analyze a partial merger that leaves complementary monopolies on just one side of a platform, producing a novel tradeoff between eliminating double marginalization and internalizing network effects. Overall, this study offers a tractable model of multi-product ecosystems, and contributes to the two-sided market literature by analyzing complementary platforms in a general multi-sided market