Intermediation and Investment Incentives
AbstractWe analyze whether and how the fact that products are not sold on open or 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6214.
Date of creation: Mar 2007
Date of revision:
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- 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, 2006. "Intermediation and investment incentives," CORE Discussion Papers 2006094, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-COM-2007-03-31 (Industrial Competition)
- NEP-MIC-2007-03-31 (Microeconomics)
- NEP-NET-2007-03-31 (Network Economics)
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