When to sell premium digital contents through the rival platform?

Digital contents, such as applications, ebooks, and video stream, etc., are playing an increasingly significant role in the electronic commerce nowadays. System providers who sell both hardware platform and digital contents may strategically choose the the provisioning strategy for their digital contents in the competition of hardware market. This paper discusses the effectiveness of a novel strategy under which the system provider grants the access to her premium digital contents through the rival platform. I employ a stylized game-theoretical model by considering two competing systems providers who are vertically-differentiated in hardware market while one of them has advantages in the digital content offerings (i.e., premium contents). The results suggest that superior and inferior platforms largely differ in controls of premium contents: 1) It is always optimal for the inferior platform to sell the digital content through superior platform. Specifically, the inferior platform should target superior platform´s market for content sales rather than extending the low-end market with premium contents; however, 2) the superior platform should consider a pure bundling strategy to further differentiate her platform when the premium is low. These implications are consistent with the practice of Amazon.com and Microsoft, while providing useful guidelines for decision-making process of system providers.