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 to 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 availale 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, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006048.
Date of creation: 01 Sep 2006
Date of revision:
Two-Sided Maarkets; Network Effects; Intermediation; Investment Incentives;
Other versions of this item:
- Belleflamme, Paul & Peitz, Martin, 2007. "Intermediation and Investment Incentives," CEPR Discussion Papers 6214, C.E.P.R. Discussion Papers.
- BELLEFLAMME, Paul & PEITZ, Martin, 2006. "Intermediation and investment incentives," CORE Discussion Papers 2006094, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- D40 - Microeconomics - - Market Structure and Pricing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-16 (All new papers)
- NEP-COM-2006-12-16 (Industrial Competition)
- NEP-MIC-2006-12-16 (Microeconomics)
- NEP-NET-2006-12-16 (Network Economics)
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