To port or not to port? Availability of exclusivity in the digital service market

Abstract

The digital service market is vast and constantly expanding. In the digital service market, platforms such as Netflix, Steam, etc. often seek to enter into exclusivity deals with service providers or developers in order to get exclusive access rights to their digital services in the hopes that offering exclusive access to a digital product will entice new consumers to use their platform and thus generate increased profits. In this study we focus on this phenomenon in the mobile gaming market. For example, the game developer Electronic Arts agreed to offer Apple iOS a 4-month exclusive deal for the well-known mobile game Plants vs. Zombies 2. The benefits of exclusivity deals for both platforms and digital service developers are unclear and have not been studied in the extant literature. We develop an analytical model of digital service profits to examine the optimal conditions of exclusivity for platforms and digital service developers. Our result shows that platforms prefer exclusivity while developers prefer offering their product on multiple platforms. We further explore the strategies that platforms and digital service developers can employ by analyzing three simultaneous and sequential game pricing and release scenarios. We find that higher profits can be generated by whichever party determines the price of a game first. However, we also found that in the presence of a leasing fee, platforms may prefer a simultaneous pricing and release scenario to even a platform-led pricing and release scenario. We conclude with implications for research and practice and suggestions for future research.