Platform Competition for Exclusivity with a Marquee Seller

Abstract

We analyse the implications of allowing exclusive dealing between a marquee product seller and two competing platforms that are asymmetric in their locked-in consumer base and compete for ‘single-homing’ new consumers. On the seller side, the platforms choose the number of fringe products, which generate uncertain value, and compete for the marquee product, which is better than an average fringe product, by offering a menu of exclusive dealing and non-exclusive dealing contracts. We show that an exclusive dealing (ED) equilibrium where the big platform has the marquee always exists. ED equilibrium is unique if the marquee gives competitive advantage to the big platform, that is, when new consumer market is covered and the small platform’s quality would be lower without the marquee. Otherwise, there exists also a nonexclusive equilibrium where both platforms have the marquee. ED harms welfare by lowering variety and the expected quality on the small platform. If the platforms are allowed to price discriminate between their loyal and new consumers, in the ED equilibrium the big platform offers more fringe products and the small platform offers fewer fringe products. Price discrimination lowers fees for new consumers and increases fees for locked-in consumers.