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Platform Intermediation in a Market for Differentiated Products

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  • Andrea Galeotti
  • José Luis Moraga Gonzales

Abstract

We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the unique subgame perfect equilibrium of the game, the platform fully internalizes the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers retain part of the economic rents. The market allocation is constraint efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2266.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2266

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Keywords: two-sided markets; network externalities; intermediation; advertising;

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References

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Citations

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Cited by:
  1. Sjaak Hurkens & Ángel L. López, 2010. "Mobile Termination, Network Externalities, and Consumer Expectations," Working Papers 441, Barcelona Graduate School of Economics.
  2. Kong-Pin Chen & Yen-Chi Huang, 2012. "A Search-Matching Model of the Buyer--Seller Platforms," CESifo Economic Studies, CESifo, CESifo, vol. 58(4), pages 626-649, December.
  3. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, Elsevier, vol. 68(C), pages 168-180.
  4. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
  5. Chhabra, Meenal & Das, Sanmay & Sarne, David, 2014. "Expert-mediated sequential search," European Journal of Operational Research, Elsevier, Elsevier, vol. 234(3), pages 861-873.
  6. Kennes, John & Schiff, Aaron, 2008. "Quality infomediation in search markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(5), pages 1191-1202, September.
  7. Moraga-Gonzalez, Jose L. & Wildenbeest, Matthijs R., 2011. "Comparison sites," IESE Research Papers, IESE Business School D/933, IESE Business School.

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