Beyond the Era of Convergence
Edited by Hitoshi Mitomo, Hidenori Fuke and Erik Bohlin
Chapter 2: Model analysis of the two-sided market of the mobile broadband business: in Japan and worldwide
AbstractIn the Japanese mobile telecommunications market, consumers are increasingly purchasing smartphones such as iPhones and Android phones. However a detailed analysis of the business models of Apple’s iPhone and Google’s Android phone reveals significant differences between their policies regarding content aggregation. Apple only integrates its own content aggregator and never permits third-party content aggregators, whereas Google accepts competitive third-party aggregators besides its own content aggregator. In this study, we considered the influence of this difference on the performance of the mobile broadband industry and examined the need for policy intervention to maximise the total surplus. We established an economic model and analysed the profit maximisation of content aggregator(s) as well as monopolistic smartphone makers, to deduce the need for policy intervention. The results obtained are as follows. First, a smartphone maker tends to give incentives to the content aggregator(s) when the consumers’ valuation of the content variety is higher. Second, a business ecosystem with a smartphone maker and two competitive content aggregators produces a larger (smaller) total surplus than an ecosystem of a smartphone maker that integrates content aggregation when consumers do (do not) value the content variety very much. Third, when the consumers’ valuation of the content variety is at a medium level, a smartphone maker that integrates content aggregation enjoys a larger profit but produces a smaller total surplus than the combination of a smartphone maker and two competitive content aggregators. Given the current market environment in which smartphone makers are actually providing incentives to content aggregators, we propose the separation of content aggregation from vertically integrated smartphone makers. The relevant regulatory authorities need to establish an arena to discuss inclusive policy actions such as the promotion of open access, for third-party content aggregators, to the smartphone platforms.
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