Abstract

Many services and applications run on platforms, such as operating systems, Web service platforms, and video game consoles. “Lock-in customers and locking-out competitors” is an important strategy for platform providers, who can lock in adopters by creating substantial cross- platform switching costs (e.g. by creating incompatibility and reducing interoperability). This paper examines whether such lock-in strategy benefits proprietary platform providers. Using a two-period duopoly model in which platform adopters are heterogeneous in their tastes and willingness-to-pay, we give conditions under which the lock-in strategy benefits or hurts platform providers. When a proprietary platform competes against an open-source-based platform, the proprietary platform should not lock-in its adopters. But if the platform battle is between two proprietary platforms, platform providers should lock-in adopters if the following two parameters are sufficiently large: (i) the adopter’s lowest willingness-to-pay and (ii) the relative dispersion of adopter willingness-to-pay. Lastly, this paper shows how naïve adopter expectations affect the platform provider’s incentives to lock-in adopters.

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