Early entrant’s strategy for cooperating with a competing fourth-party platform

Abstract

By integrating several third-party platforms that enter the market late (later entrants), a fourth-party platform can effectively compete with the third-party platform that enters the market early (early entrant). Our research develops an analytical framework to address the platform coopetition problem that the early entrant faces, i.e., integrating its service into the fourth-party platform or not, when there is a fourth-party platform in the market. This study provides optimal conditions and platform decisions for platform coopetition and then explores the impact of the implementation of the coopetition strategy on platform prices and consumer demands. Our analytical results show that the coopetition strategy is effective only when the sum of the strengths of direct and indirect network effects is low and the quality difference between the early and later entrants is higher than a certain threshold. Moreover, the early entrant always partially integrates its service into the fourth-party platform when the coopetition strategy is adopted. Such adoption always lowers the prices of the early and later entrants. The implementation of the coopetition strategy always increases the total consumer demand of the early entrant, but it also results in a reduction in the number of consumers in the standalone application of the early entrant.