Economic models for digital convergence

Abstract

Digital Convergence - the congregation of communication and information in a digital format, synthesizes microprocessor, software and communication technologies to create emergent platforms that address multiple functionality spaces and overlapping consumer segments. This paper studies platform-based competition between firms under digital convergence using triple play on xDSL and Cable as an example. Observations based on a simple numerical model indicate that when features that were once considered diametrically opposite are bundled on a platform, duopolistic competition emerges by replacing traditional monopolies enjoyed by specific products. The model explains behavior of firms under a competitive equilibrium and discusses strategic decisions such as choice of platforms, investments in product scope vis-a-vis operational excellence and pricing.