Platform Competition as Network Contestability
AbstractRecent research in industrial organisation has investigated the essential place that middlemen have in the networks that make up our global economy. In this paper we attempt to understand how such middlemen compete with each other through a game theoretic analysis using novel techniques from decision-making under ambiguity. We model a purposely abstract and reduced model of one middleman who provides a two-sided platform, mediating surplus-creating interactions between two users. The middleman evaluates uncertain outcomes under positional ambiguity, taking into account the possibility of the emergence of an alternative middleman offering intermediary services to the two users. Surprisingly, we find many situations in which the middleman will purposely extract maximal gains from her position. Only if there is relatively low probability of devastating loss of business under competition, the middleman will adopt a more competitive attitude and extract less from her position.
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Bibliographic InfoPaper provided by Department of Economics, Temple University in its series DETU Working Papers with number 1303.
Date of creation: Oct 2013
Date of revision:
competition; middlemen; ambiguity; platform; two-sided market; market intermediation;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-02 (All new papers)
- NEP-COM-2013-11-02 (Industrial Competition)
- NEP-GTH-2013-11-02 (Game Theory)
- NEP-NET-2013-11-02 (Network Economics)
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