Will a matchmaker invite her potential rival in?

Abstract

This paper analyzes optimal strategies of an incumbent intermediary, who matches agents on the two sides of a market, in the presence of entry threat under alternative scenarios. It shows that, when entry is free, strategic entry accommodation is the optimal choice of the incumbent—not entry deterrence, unless the variation in agents' types is small. Entry accommodation remains optimal for the incumbent for a wide range of parametric configurations even when there is a fixed cost of entry. These results are in sharp contrast to the predictions of existing models of entry.

More market awareness, more profit? Competitive environments, business expansions, and two‐sided markets

“…The papers that are closely related to ours are those that examine the competition of the potential entrant and incumbent using platforms. For instance, Pal and Ramani (2017) studied the competition of the incumbent and potential entrant in two‐sided markets. They found that entry deterrence is not always an optimal strategy for the incumbent, and whether to accommodate or deter the entrant depends on the fixed cost of entry.…”

“…The above examples motivate us to study the competition between potential entrant platforms and incumbent platforms in the case of business expansion 5 . In recent years, interest in the competition of incumbents and potential entrants has increased sharply (Bakos & Brynjolfsson, 2000,Barrachina, 2019, Huberts, Dawid, Huisman, and Kort ; 2019,2017). More specifically, Bakos and Brynjolfsson (2000) studied different types of competition, including upstream and downstream competition.…”

“…More specifically, Bakos and Brynjolfsson (2000) studied different types of competition, including upstream and downstream competition. Pal and Ramani (2017) found that entry deterrence is not always an optimal strategy for the incumbent and whether to accommodate or deter the entrant depends on the fixed cost of entry. Barrachina (2019) constructed an entry model and studied the entry game considering information‐gathering activities, thereby helping the incumbent to better decide whether to accommodate or fight.…”