Platform acquisitions, product imitation and openness

Abstract

Public authorities have shown concern about the possible harmful effects of platforms acquiring or imitating complementary services sold on their platforms. The effect of these practices on the restrictions on participation, development, or use of platform services (platform openness) has started to attract the attention of policymakers and researchers alike, but the evidence is still limited. We build a model that considers the trade-off that a monopoly platform faces when deciding whether to acquire or imitate a complementor and how such a decision influences openness and welfare. We show that a platform always has an incentive to acquire or imitate complementors. Which one is preferred depends on whether the increase in platform value (acquisition) offsets the market expansion effect (imitation). We find that acquisitions reduce openness and welfare but may generate more valuable complements while imitation increases openness and welfare but may harm third-party developers.