Complementarity on software as a service platform

Abstract

AbstractA platform owner offers product A. A third‐party firm develops a complementary product B: An additional value is created when the two products are consumed together. Access to the platform owner's customer base would broaden the third‐party firm's market reach. First, the third‐party firm chooses the quality of its product. Then, the platform owner and the third‐party firm simultaneously set their prices. We find that a higher level of product complementarity gives the third‐party firm an incentive to raise its quality; however, access to the platform may result in either a higher or a lower quality.