Platform coopetition in two-sided markets

This paper explores the welfare effects of coopetition between two-sided platforms in the context of a competitive bottleneck, i.e., when participants on one side of the market (the buyers) choose at most one platform (i.e., singlehome), while participants on the other side (the sellers) can be active on both platforms (i.e., multihome). Under coopetition, when platforms set their sellers’ subscription prices cooperatively and buyers’ subscription prices non-cooperatively, platforms internalize that when they reduce their price on the seller side, this will harm the rival platform by making it less attractive to buyers, and through the indirect network effects, to sellers too. Therefore, coopetition leads the platforms to raise their subscription price for sellers compared to the case of full competition. However, as sellers become more valuable under coopetition and buyers exert a positive cross-group network effect on sellers, the competition for buyers is intensified, which leads to a lower price for buyers under coopetition than under competition. Coopetition can increase total surplus compared to full competition if additional participants on the singlehoming side join the market. JEL classification: D43, L13, L86.