Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly
AbstractA two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolistic service providers to some contacts but duopolists over contacts they share in their network overlap. the intermediaries' inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0854.
Date of creation: Feb 2008
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
International Trade; Pairwise Matching; Information Cost; Intermediation; Networks;
Other versions of this item:
- Dimitra Petropoulou, 2007. "Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly," Economics Series Working Papers 371, University of Oxford, Department of Economics.
- F10 - International Economics - - Trade - - - General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-07 (All new papers)
- NEP-COM-2008-06-07 (Industrial Competition)
- NEP-CSE-2008-06-07 (Economics of Strategic Management)
- NEP-INT-2008-06-07 (International Trade)
- NEP-MIC-2008-06-07 (Microeconomics)
- NEP-NET-2008-06-07 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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