Cournot and Bertrand Competition in the Software Industry

In a software industry based on a platform firm and two firms producing differentiated applications complementary to the platform, we investigate the effects on profits and welfare of the choice of different contracts (price versus quantity) by the application firms. In contrast to the traditional result, equilibrium profits are higher under Cournot or Bertrand competition depending upon the degree of complementarity between platform and application producers as well as the degree of substitutability between applications; the social welfare may be higher under Cournot when the application products are highly substitutable.

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