Many two-sided platforms (e.g. eBay, Google, iOS, Android, Twitter, Amazon, etc.) provide application programming interfaces (APIs). Because APIs are costly to develop, but critical to facilitate third party content development, they are strategic to the firm. In order to gain insight into the investment in APIs, we develop an analytic model to explore the key trade-offs. In particular, we examine the optimal investment in APIs and how that investment coordinates with the pricing decisions in a two-sided market. We model these decisions under a number of scenarios including monopoly and competitive platforms as well as symmetric and asymmetric platforms. We conclude by extending the base model to incorporate developers’ heterogeneity in content quality.
Session: 4B, Paper Number: 3