Game theory revisted – I think typical “competitive price vs quality of service” equilibrium doesn’t hold true when competing firms generate their profits on the different “segments of service”. For example, Apple intends to generate profit on providing access to the AppStore, where as Google intends to profit on data and ads. I wonder if there can ever be a nash equilibrium in such a game. I could be wrong.
Competitive equilibrium is defined as a situation in which no firm can offer a price service rate combination that offers higher utility than others but still earns positive expected profits (quote from published research).
So, I say this competitive equilibrium will not hold in case of Google vs Apple – unless Google is under estimating the “marginal cost” of offering this service. If that is the case, Apple would not have anything to fear with Google’s zero fee subscription service as in the long run, Google would have to generate enough revenue to cover the margin cost and then profit on top which will succumb them to re-evaluate their price strategy.
What if Apple offers another tier in their Service offering that is ad supported – which competes head on with Google?
I could be completely off base here …..