Application compatibility and affiliation in two-sided markets

This paper analyzes the unilateral choices of application compatibility by platforms and the endogenous affiliations of two different groups (content providers and users). We find a novel result that for both platforms to unilaterally choose application compatibility is not an equilibrium unless the cost for achieving application compatibility is zero. We also find that asymmetric equilibria exist with regard to other content, where one platform chooses incompatibility while the other platform chooses compatibility and that, these asymmetric equilibria are harmful both to the content providers and to users, compared to the (out-of-equilibrium) outcome where both platforms choose application compatibility.