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Platform competition and seller investment incentives

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Author Info

  • Belleflamme, Paul
  • Peitz, Martin

Abstract

Many products and services are not sold on open platforms but on competing for-profit platforms, which charge buyers and sellers for access. What is the effect of for-profit intermediation on seller investment incentives? Since for-profit intermediaries reduce the available rents in the market, one might naively suspect that sellers have weaker investment incentives with competing for-profit platforms. However, we show that for-profit intermediation may lead to overinvestment when free access would lead to underinvestment because investment decisions affect the strength of indirect network effects and, thus, access prices. We characterize the effect of for-profit intermediation on investment incentives depending on the nature of the investment and on which side of the market singlehomes.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 8 (November)
Pages: 1059-1076

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:8:p:1059-1076

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Related research

Keywords: Two-sided markets Network effects Intermediation Investment incentives;

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References

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  14. Thomas Gehrig, 1993. "Intermediation in Search Markets," Discussion Papers 1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Citations

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Cited by:
  1. Ralf Dewenter & Justus Haucap & Tobias Wenzel, 2012. "On File Sharing With Indirect Network Effects Between Concert Ticket Sales and Music Recordings," Journal of Media Economics, Taylor & Francis Journals, vol. 25(3), pages 168-178, September.
  2. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," TSE Working Papers 11-223, Toulouse School of Economics (TSE), revised Mar 2011.
  3. Rasch, Alexander & Wenzel, Tobias, 2013. "Piracy in a two-sided software market," DICE Discussion Papers 85, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
  5. Stennek, Johan, 2014. "Exclusive quality – Why exclusive distribution may benefit the TV-viewers," Information Economics and Policy, Elsevier, vol. 26(C), pages 42-57.
  6. Anna Creti & Marianne Verdier, 2011. "Fraud, Investments and Liability Regimes in Payment Platforms," EconomiX Working Papers 2011-31, University of Paris West - Nanterre la Défense, EconomiX.

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