When Does A Platform Create Value By Limiting Choice?

Date Added: Jan 2011
Format: PDF

The author presents a theory for why it might be rational for a platform to limit the number of applications available on it. The model is based on the observation that even if users prefer application variety, applications often also exhibit direct network effects. The paper shows that the platform can resolve these problems by limiting the number of applications available. By limiting choice, the platform may create new equilibrium; eliminate equilibrium that give lower utility to the users; and reduce the severity of the coordination problem faced by users.