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Platform market competition with endogenous side decisions

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  • Jay Pil Choi
  • Yusuke Zennyo

Abstract

This paper develops a framework to analyze platform competition in two‐sided markets in which agents endogenously decide on which side of a platform to join. We characterize the equilibrium pricing structure and perform a comparative statics analysis on how the distribution of agents’ preferences affects the platforms’ profits. We also show that the market equilibrium under profit‐maximizing platforms leads to the first best social surplus, which illustrates the importance of the price mechanism to induce more balanced participation across the two sides. This framework can be applied to analyze market competition for “rental” or “sharing” platforms. In addition, we extend our analysis to consider an initial investment stage, which makes participants the owner of some durable goods to rent out.

Suggested Citation

  • Jay Pil Choi & Yusuke Zennyo, 2019. "Platform market competition with endogenous side decisions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 73-88, January.
    • Handle: RePEc:bla:jemstr:v:28:y:2019:i:1:p:73-88
    DOI: 10.1111/jems.12305
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    References listed on IDEAS

    as
    1. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    2. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    3. Belleflamme, Paul & Peitz, Martin, 2010. "Platform competition and seller investment incentives," European Economic Review, Elsevier, vol. 54(8), pages 1059-1076, November.
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    Cited by:

    1. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    2. Raúl Bajo-Buenestado & Markus Kinateder & Raul Bajo-Buenestado, 2023. "Prices and Mergers in a General Model of Multi-Sided Markets," CESifo Working Paper Series 10818, CESifo.
    3. Jingbo Hu & Taohua Ouyang & William X. Wei & Jiawei Cai, 2020. "How Do Manufacturing Enterprises Construct E-Commerce Platforms for Sustainable Development? A Case Study of Resource Orchestration," Sustainability, MDPI, vol. 12(16), pages 1-18, August.
    4. Aika Monden & Yusuke Zennyo, 2022. "Consumer rebates from e‐commerce platforms and multichannel management of third‐party sellers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3059-3071, October.
    5. Juan Manuel Sanchez‐Cartas & Gonzalo León, 2021. "Multisided Platforms And Markets: A Survey Of The Theoretical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 452-487, April.
    6. Meijian Yang & Enjun Xia, 2021. "A Systematic Literature Review on Pricing Strategies in the Sharing Economy," Sustainability, MDPI, vol. 13(17), pages 1-28, August.
    7. Mohammed Mardan & Mark J. Tremblay, 2022. "Network Effects: Betwixt and Between," CESifo Working Paper Series 10082, CESifo.
    8. Thomas D. Jeitschko & Mark J. Tremblay, 2020. "Platform Competition With Endogenous Homing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1281-1305, August.

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