2006): “Does a Platform Monopolist Want Competition?,” Diskussionsschriften dp0604, Universitat Bern, Volkswirtschaftliches Institut, available at http://ideas.repec.org/p/ube/dpvwib/dp0604.html

We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commit-ment to lower prices for applications. Third, higher expected product diversity may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft’s operating system