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Chicken and Egg: Competing Matchmakers

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  • Caillaud, Bernard
  • Jullien, Bruno

Abstract

We examine a Bertrand competition game between two intermediaries offering matching services between two sides of a market. Indirect network externalities arise as the probability of finding one's match with a given intermediary increase with the number of agents of the other side who use the services of this intermediary. We formalise some specificities of intermediation on the Internet by allowing registration and transaction prices, and multiple registration. When only registration fees are used and agents register to at most one cybermediary, there exists an equilibrium where one firm corners the market with positive profits, as well as zero profit equilibria where the firms share the market. Introducing either fees that are contingent on successful matching or the possibility of registration with two intermediaries drastically reduces the profits of a dominant firm. Moreover, with multiple registration, new types of positive-profit equilibria emerge where both matchmakers are active and one side of the market registers with both cybermediaries.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2885.

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Date of creation: Jul 2001
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Handle: RePEc:cpr:ceprdp:2885

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Related research

Keywords: competition; intermediation; internet; matching; network externalities;

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References

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  1. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, C.E.P.R. Discussion Papers.
  2. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  3. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
  4. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December.
  5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  6. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  7. Yanelle, Marie-Odile, 1989. "The strategic analysis of intermediation," European Economic Review, Elsevier, vol. 33(2-3), pages 294-301, March.
  8. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
  9. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
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Citations

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Cited by:
  1. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, C.E.P.R. Discussion Papers.
  2. 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, 06.
  3. Sujit Chakravorti & Roberto Roson, 2004. "Platform competition in two-sided markets: the case of payment networks," Working Paper Series WP-04-09, Federal Reserve Bank of Chicago.
  4. John Rust & George Hall, 2001. "Middle Men Versus Market Makers: A Theory of Competitive Exchange," Cowles Foundation Discussion Papers 1299, Cowles Foundation for Research in Economics, Yale University.
  5. Nahm, Jae, 2003. "The gatekeeper's optimal fee structure when sellers can price discriminate," Economics Letters, Elsevier, vol. 80(1), pages 9-14, July.

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