Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly
AbstractA two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolist service providers to some contacts but duopolists over contacts they share in their network overlap. The intermediaries` inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 371.
Date of creation: 01 Nov 2007
Date of revision:
International Trade; Pairwise Matching; Information Cost; Intermediation; Networks;
Other versions of this item:
- Dimitra Petropoulou, 2008. "Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly," CEP Discussion Papers dp0854, Centre for Economic Performance, LSE.
- F10 - International Economics - - Trade - - - General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-COM-2008-03-25 (Industrial Competition)
- NEP-CSE-2008-03-25 (Economics of Strategic Management)
- NEP-INT-2008-03-25 (International Trade)
- NEP-MIC-2008-03-25 (Microeconomics)
- NEP-NET-2008-03-25 (Network Economics)
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.:
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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- Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
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- Felbermayr, Gabriel J. & Jung, Benjamin, 2011.
"Trade intermediation and the organization of exporters,"
331, University of Tübingen, School of Business and Economics.
- Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, 09.
- Gabriel J Felbermayr & Benjamin Jung, 2009. "Trade Intermediation and the Organization of Exporters," Diskussionspapiere aus dem Institut fÃ¼r Volkswirtschaftslehre der UniversitÃ¤t Hohenheim 309/2009, Department of Economics, University of Hohenheim, Germany.
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