STRATEGIC SELECTION OF REVENUE MODELS FOR COMPETING PLATFORMS CONSIDERING COMPATIBILITY CHOICES

Abstract

This paper establishes a game-theoretic model to investigate the compatibility decisions and revenue model selections of two competing platforms. Our findings reveal that service margin and revenue sharing percentage critically determine the platforms’ optimal revenue model. Under the two-way compatibility, the asymmetric impact of these parameters can lead to different revenue model choices; under one-way compatibility, the platform’s revenue choices are additionally influenced by consumer software preferences. We also examined the equilibrium compatibility choices and found that one platform consistently favors two-way compatibility, while the compatibility choice of the other platform is influenced by the revenue model. Specifically, when both the service profit margin and the revenue sharing percentage are small, it tends to choose two-way compatibility under the wholesale model; but when both parameters are large, it prefers two-way compatibility under the revenue sharing model. Finally, we studied the impact of revenue models on compatibility strategies from a supply chain perspective.