Decision-making of closed platforms and open platforms: game playing analysis among downstream manufacturers based on the demand advantage and cost advantage

GUO Guangzhen1 ZHANG Yulan1 HU Kejia2

(1.School of Economics, Liaoning University 110036)
(2.Owen Graduate School of Management, Vanderbilt University)

【Abstract】Because of the rapid development of the information industry, open platforms and closed platforms have been concerned by more and more people. The analysis on traditional industries shows that the resource allocation model of these two types of platforms is ubiquitous in many industries. The existing studies about the platform itself and final consumers are very comprehensive, and this paper studies the downstream manufacturers between these two. Considering the number of downstream manufacturers is far less than that of final consumers, the network effect which much literature has paid attention to is of little significance in the platform decision-making of the downstream manufacturers. On the basis of defining different types of platforms as demand advantage and cost advantage, this paper has constructed the dynamic game model with incomplete information that is chosen by platforms, based on taking the result of dynamic games (production) with complete information as payment. The results of model analysis show that under the separation strategy, if the first manufacturers do not follow the demand advantage to select the platform type, there is no game equilibrium. If the first manufacturers select the platform type in accordance with the demand, the greater the demand advantage is, the more likely the following manufacturers tend to choose a closed platform; the greater the cost advantage is, the more likely the following manufacturers tend to choose an open platform. In the pooling and separation equilibrium strategy, when the first manufacturers always choose the open platform, if the probability of the high demand’s non-equilibrium path is greater than the priori probability, then the greater the demand advantage is, the greater the cost advantage is, and the more likely the following manufacturers choose to open platforms; otherwise, they are more inclined to choose closed platforms. When the first manufacturers always choose closed platforms, if the high demand’s priori probability is greater than the probability of the non-equilibrium path, then the greater the demand advantage is, the smaller the cost advantage is, and the more likely the following manufacturers tend to choose closed platforms; otherwise, they are more inclined to choose open platforms.

【Keywords】 downstream manufacturer; dynamic game with incomplete information; open platform; closed platform;

【Funds】 The general project of National Social Science Fund of China (14BJL083) The youth project of Ministry of Education Humanities and Social Sciences Fund (12YJC790046)

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(Translated by GUO junfeng)

    Footnote

    [1]. ① In current China, the behaviors of some Internet platforms are more extreme. They not only do not charge users, but also offer them subsidies, such as the subsidy competition between Didi Dache and KuaidI Dache and so on.

    [2]. ② Nominally, it is the choice between two platforms. In fact, if the choice is the closed platform, it means building a new platform.

    [3]. ① In fact, this paper can also try to understand the variable costs here from the quality difference. The strict definition of variable costs is the cost that changes as production changes, and some examples in reality may not be in line with this definition. Because this paper assumes that the products produced by different platforms are homogeneous, this assumption is not entirely corresponding with the reality. However, this paper can transform quality differences into cost differences. For example, the mobile phones using Android platforms are with a relatively low quality, so the repair rate is higher, and the cost of repairing phones is positively related to the sales of the phone. Therefore, this part of the cost can also be regarded as variable costs. From the two perspectives above, the variable cost of an open platform is generally higher than that of a closed platform, which is also relatively intuitional.

    [4]. ① The cost structure and the technical level are actually equivalent to the two sides of a coin. Technology has always been an important variable that affects corporate behaviors, especially the strategic alliance of two enterprises.

    [5]. ② There is also a type of literature that analyzes which actors will invest in and contribute to open software (Lerner et al., 2006; Sen et al., 2008).

    [6]. ① About solving the problem of information asymmetry, this paper does not consider the asymmetric information of enterprises’ competency types like general models, but rather considers the asymmetric problem of demand information. In the case that the enterprise’s informative mechanism is very sufficient, the competency type of the enterprise is easier to obtain and can be reflected by the cost factor considered in this paper. Furthermore, the asymmetry problem of demand information is also the content that much literature analyzes (Li, 2002).

    [7]. ② Another reason for a lower variable cost is that there are many enterprises using the same type of open platforms. There are also many enterprises that provide services for specific enterprises, and the service cost is relatively low.

    [8]. ① The calculation process is described in the website of China Industrial Economics (http://www.ciejournal.org).

    [9]. ② In other words, in each specific path, each payment is determined by specific demand, cost, and the selection strategies of A and B. Because it is a specific variable, it is a kind of common knowledge for each actor. It is equivalent to the dynamic game with complete information. Furthermore, it is important to note that the solution to the payment should be distinguished from the game between open and closed platforms.

    [10]. ① The process of equilibrium refinement is mainly given in the appendix, as described in the website of China Industrial Economics (http://www.ciejournal.org). It should be noted that this is not the order of the game but the refinement order of the game.

    [11]. ① This paper only gives the strategic behaviors of the actors when solving the first game equilibrium. The subsequent equilibrium is placed in the appendix to be dealt with, with reference to the open appendix in the website of China Industrial Economics (http://www.ciejournal.org).

    [12]. ② To check the proof process, see the open Appendix 2 in the website of China Industrial Economics (http://www.ciejournal.org).

    [13]. ③ To check the proof process, see the open Appendix 3 in the website of China Industrial Economics (http://www.ciejournal.org).

    [14]. ① Proposition 1 is only a general description for the complex game equilibrium, and gives a general trend judgment.

    [15]. ② The graphics are written in R language, and the entire program contains more than 300 lines of codes. If necessary, it can be obtained from the author.

    [16]. ③ Because the variables in the two axes, such as a in different requirements and t in different platforms, also appear in other positions of the inequation, the gradient boundary of the image appears.

    [17]. ① To check the proof process, see the open Appendix 4 in the website of China Industrial Economics (http://www.ciejournal.org).

    [18]. ② Here we must assume that p > ρ. Otherwise, this condition will not be established.

    [19]. ① Similarly, Proposition 2 also uses very concise words to intuitively and general describe the game equilibrium. Accurate and detailed understanding also requires a complex equilibrium refinement process.

    [20]. ② The specific use is 1/α.

    [21]. ① Of course, Eoc in Proposition 1 cannot find the corresponding equilibrium in Proposition 2.

    [22]. ① To check the proof process, see the open Appendix 5 in the website of China Industrial Economics (http://www.ciejournal.org). It should be noted that it is p - ρ here, while the former case is p - ρ.

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 03, Pages 64-82

March 2017

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Model construction
  • 4 Model solving and simulation
  • 5 Further analysis
  • 6 Conclusion
  • Footnote

    References

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