Vertical Relationships within Platform Marketplaces

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: In two-sided markets a platform allows consumers and sellers to interact by creating sub-markets within the platform marketplace. For example, Amazon has sub-markets for all of the different product categories available on its site, and smartphones have sub-markets for different types of applications (gaming apps, weather apps, map apps, ridesharing apps, etc.). The network benefits between consumers and sellers depend on the mode of competition within the sub-markets: more competition between sellers lowers product prices, increases the surplus consumers receive from a sub-market, and makes platform membership more desirable for consumers. However, more competition also lowers profits for a seller which makes platform membership less desirable for a seller and reduces seller entry and the number of sub-markets available on the platform marketplace. This dynamic between seller competition within a sub-market and agents' network benefits leads to platform pricing strategies, participation decisions by consumers and sellers, and welfare results that depend on the mode of competition. Thus, the sub-market structure is important when investigating platform marketplaces. Terms of use: Documents in

Trade Protection with Two-Sidedness

“…Given our previous findings on trade protection with network externalities, a positive tariff policy against a monopoly platform may not be surprising. However, Tremblay and Wilson (2015) show that the optimal tax policy within an economy is a subsidy policy to increase participation and the number of interactions on a platform. This generates large network externality gains that the platform would otherwise not capture.…”

“…This result also relates to the growing literature on platform taxation within a single economy without trade. Tremblay and Wilson (2015) show how the social planner will optimally use subsidies in platform sales and in content sales to increase the network externalities and the resulting welfare within the economy. However with imports from a foreign monopoly, the home country does not care about foreign welfare and they know that a platform, with network externalities, has a greater willingness to maintain participation levels than a traditional firm.…”

“…For more on decreasing marginal returns from consumers seeLee (2013),Bresnahan et al (2015),Jeitschko and Tremblay (2015) andTremblay (2015).4 We focus on the case when marginal benefits are decreasing, A (N 1 ) < 0, as this ensures profit maximization and is seen in existing network industries.…”

Will a matchmaker invite her potential rival in?

“…Our work is also related to models of entry in the presence of network externalities (Caillaud & Julien, , ; Economides, ; Fudenberg & Tirole, ), and models of platform competition (Armstrong, ; Farhi & Hagiu, ; Lee, , ; Tremblay, ; White & Weyl, ) . Entry accommodation is obtained as an equilibrium result in Economides () where an incumbent monopolist invites entry and increases the market size which in turn generates a network externality boosting the demand.…”

“…Other papers on platform competition include White and Weyl (), which builds on Armstrong () and discusses the idea of splitting (accommodation) and tipping (deterrence) equilibrium, the mechanics of which depend on network benefits and product differentiation . Finally, network effects are also considered in Tremblay (), where the platform (say a smart phone) chooses the price to charge the two sides of the market (consumers and App developers) and focuses on how many developers participate. However, in our setting, the intermediaries only choose one price to charge the two sides.…”