Imperfect Platform Competition: A General Framework
AbstractThe externalities advertisers receive from newspaper readers and that operating system users receive from software developers are among the leading features of those “platform” industries. However, they are rarely incorporated into applied models of imperfect competition. We argue this omission is due to a basic theoretical indeterminacy created by these externalities and propose the solution concept of Insulated Equilibrium to resolve it. At such equilibrium, each platform’s price on one side of the market adjusts to participation on the other side so as to insulate its own allocation, eliminating both the necessity for consumer coordination and the multiplicity of platform best replies. This allows us to solve a model of oligopoly without the unrealistic restrictions typically imposed for tractability and to demonstrate that the fundamental additional distortion created by consumption externalities is analogous to that identified by Spence (1975)’s analysis of a quality-choosing monopolist.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 10-17.
Length: 41 pages
Date of creation: Sep 2010
Date of revision: Nov 2010
Contact details of provider:
Web page: http://www.NETinst.org/
Two-sided Markets; Multi-sided Platforms; Quality Competition; Oligopoly; Insulated Equilibrium; Antitrust and Mergers in Network Industries;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-06 (All new papers)
- NEP-COM-2010-11-06 (Industrial Competition)
- NEP-IND-2010-11-06 (Industrial Organization)
- NEP-NET-2010-11-06 (Network Economics)
- NEP-REG-2010-11-06 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bedre-Defolie, Özlem & Calvano, Emilio, 2009.
"Pricing payment cards,"
Working Paper Series
1139, European Central Bank.
- Elena Argentesi & Lapo Filistrucchi, 2005.
"Estimating market power in a two-sided market: the case of newspapers,"
Economics Working Papers
ECO2005/07, European University Institute.
- Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
- repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
- Ambarish Chandra & Allan Collard-Wexler, 2009.
"Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 18(4), pages 1045-1070, December.
- Chandra, Ambarish & Collard-Wexler, Allan, 2008. "Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry," MPRA Paper 7954, University Library of Munich, Germany.
- Rabah Amir, 2000.
"On the Effects of Entry in Cournot Markets,"
Econometric Society World Congress 2000 Contributed Papers
1475, Econometric Society.
- Rabah Amir & Val E. Lambson, 1998. "On the Effects of Entry in Cournot Markets," CIE Discussion Papers 1998-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- AMIR, Rabah & LAMBSON, Val, 1999. "On the effects of entry in Cournot markets," CORE Discussion Papers 1999059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
- Andrei Hagiu & Robin S. Lee, 2011. "Exclusivity and Control," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 679-708, 09.
- Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Peitz, Martin & Valletti, Tommaso M., 2008.
"Content and advertising in the media: Pay-tv versus free-to-air,"
International Journal of Industrial Organization,
Elsevier, vol. 26(4), pages 949-965, July.
- Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers.
- Kenneth C. Wilbur, 2008. "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, INFORMS, vol. 27(3), pages 356-378, 05-06.
- Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
- Estelle Cantillon & Pai-Ling Yin & Sloan Mit, .
"Competition between Exchanges - Lessons from the Battle of the Bund,"
ULB Institutional Repository
2013/151702, ULB -- Universite Libre de Bruxelles.
- Cantillon, Estelle & Yin, Pai-Ling, 2008. "Competition between Exchanges: Lessons from the Battle of the Bund," CEPR Discussion Papers 6923, C.E.P.R. Discussion Papers.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- Ulrich Doraszelski & Joe Harrington & Jiawei Chen, 2009.
"Avoiding Market Dominance: Product Compatibility in Markets with Network Effects,"
2009 Meeting Papers
30, Society for Economic Dynamics.
- Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485.
- Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2008. "Avoiding Market Dominance: Product Compatibility in Markets with Network Effects," Economics Working Paper Archive 537, The Johns Hopkins University,Department of Economics.
- Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
- E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
- repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
- repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
- Jaffe Sonia & Weyl E. Glen, 2010. "Linear Demand Systems are Inconsistent with Discrete Choice," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-8, December.
- Tirole, Jean & Weyl, Glen, 2010. "Materialistic Genius and Market Power: Uncovering the best innovations," IDEI Working Papers 629, Institut d'Économie Industrielle (IDEI), Toulouse.
- Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer, vol. 32(2), pages 353-380, August.
- Jullien, Bruno, 2010.
"Two-Sided B2B Platforms,"
TSE Working Papers
11-223, Toulouse School of Economics (TSE), revised Mar 2011.
- Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Charles Angelucci & Julia Cage & Romain de Nijs, 2013. "Price Discrimination in a Two-Sided Market: Theory and Evidence from the Newspaper Industry," Working Papers 13-13, NET Institute.
- Renato Gomes & Alessandro Pavan, 2011. "Price Discrimination in Many-to-Many Matching Markets," Discussion Papers 1540, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.