Intermediation and investment incentives
AbstractWe analyze whether and how the fact that products are not sold on free, public platforms but on competing for-profit platforms affects sellers? investment incentives. Investments in cost reduction, quality, or marketing measures are here the joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are available in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006094.
Date of creation: 00 Oct 2006
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two-sided markets; network effects; intermediation; investment incentives;
Other versions of this item:
- Paul, BELLEFLAMME & Martin PEITZ, 2006. "Intermediation and investment incentives," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2006048, Université catholique de Louvain, Département des Sciences Economiques.
- Belleflamme, Paul & Peitz, Martin, 2007. "Intermediation and Investment Incentives," CEPR Discussion Papers 6214, C.E.P.R. Discussion Papers.
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- D40 - Microeconomics - - Market Structure and Pricing - - - General
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