Opitmal Platform Strategies in the Smartphone Market

Abstract

In a smartphone market, smartphone makers encourage smartphone application providers (AP) to create more popular smartphone applications through making a revenue-sharing contract with AP and providing application-purchasing support to end users. In this paper, we study revenue-sharing and application-purchasing support problem between a risk-averse smartphone maker and a smartphone application provider. The problem is formulated as the smartphone makers's risk-sensitive stochastic control problem. The sufficient conditions for the existence of the optimal revenue-sharing strategy, the optimal application-purchasing support strategy and the incentive compatible effort recommended to AP are obtained. The effects of the smartphone makers's risk-sensitivity on the optimal strategies are also discussed. A numerical example is solved to show the computation aspects of the problem.