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Beyond equilibrium: revisiting two-sided markets from an agent-based modelling perspective

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  • Torsten Heinrich
  • Claudius Gräbner

Abstract

Two-sided markets are an important aspect of today's economies. Yet, the attention they have received in economic theory is limited, mainly due to methodological constraints of conventional approaches: Two-sided markets often exhibit non-trivial dynamics that are difficult to describe via analytical equilibrium models. We illustrate this point by revisiting a well-known equilibrium model of two-sided markets by Rochet and Tirole from an agent-based computational perspective. We identify several inconsistencies as well as implicit and implausible assumptions of the original model. These limit its explanatory power and motivate an alternative approach. The agent-based model we propose allows us to study two-sided markets in a more realistic and adequate manner: Not only are we able to compare different decision-making rules for the providers, we can also study situations with more than two providers. Thus, our model represents a first step towards a more realistic and policy-relevant study of two-sided markets.

Suggested Citation

  • Torsten Heinrich & Claudius Gräbner, 2019. "Beyond equilibrium: revisiting two-sided markets from an agent-based modelling perspective," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 9(3), pages 153-180.
    • Handle: RePEc:ids:ijcome:v:9:y:2019:i:3:p:153-180
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    References listed on IDEAS

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    1. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
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    3. Martin Peitz & Sven Rady & Piers Trepper, 2017. "Experimentation in Two-Sided Markets," Journal of the European Economic Association, European Economic Association, vol. 15(1), pages 128-172.
    4. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    5. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    7. Brian Arthur, W. & Ermoliev, Yu. M. & Kaniovski, Yu. M., 1987. "Path-dependent processes and the emergence of macro-structure," European Journal of Operational Research, Elsevier, vol. 30(3), pages 294-303, June.
    8. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    9. Bendor Jonathan & Mookherjee Dilip & Ray Debraj, 2001. "Reinforcement Learning in Repeated Interaction Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, March.
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    Cited by:

    1. William Rand & Roland T. Rust & Min Kim, 2018. "Complex systems: marketing’s new frontier," AMS Review, Springer;Academy of Marketing Science, vol. 8(3), pages 111-127, December.
    2. William Rand & Christian Stummer, 2021. "Agent‐based modeling of new product market diffusion: an overview of strengths and criticisms," Annals of Operations Research, Springer, vol. 305(1), pages 425-447, October.

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    More about this item

    Keywords

    two-sided markets; network externalities; agent-based modelling; simulation; heuristic decision making; reinforcement learning; satisficing; differential evolution; evolutionary economics; market structure; IT economics; equilibrium dynamics.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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