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Vertical Relationships within Platform Marketplaces

Author

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  • Mark J. Tremblay

    (Department of Economics, McMaster University, Hamilton, ON, L8S 4M4, Canada)

Abstract

In two-sided markets a platform allows consumers and sellers to interact by creating sub-markets within the platform marketplace. For example, Amazon has sub-markets for all of the different product categories available on its site, and smartphones have sub-markets for different types of applications (gaming apps, weather apps, map apps, ridesharing apps, etc.). The network benefits between consumers and sellers depend on the mode of competition within the sub-markets: more competition between sellers lowers product prices, increases the surplus consumers receive from a sub-market, and makes platform membership more desirable for consumers. However, more competition also lowers profits for a seller which makes platform membership less desirable for a seller and reduces seller entry and the number of sub-markets available on the platform marketplace. This dynamic between seller competition within a sub-market and agents’ network benefits leads to platform pricing strategies, participation decisions by consumers and sellers, and welfare results that depend on the mode of competition. Thus, the sub-market structure is important when investigating platform marketplaces.

Suggested Citation

  • Mark J. Tremblay, 2016. "Vertical Relationships within Platform Marketplaces," Games, MDPI, vol. 7(3), pages 1-11, July.
    • Handle: RePEc:gam:jgames:v:7:y:2016:i:3:p:17-:d:73803
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    References listed on IDEAS

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    Cited by:

    1. Nestor Duch-Brown, 2017. "Platforms to business relations in online platform ecosystems," JRC Working Papers on Digital Economy 2017-07, Joint Research Centre.
    2. Thomas D. Jeitschko & Mark J. Tremblay, 2020. "Platform Competition With Endogenous Homing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1281-1305, August.
    3. Rupayan Pal & Vinay Ramani, 2017. "Will a matchmaker invite her potential rival in?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 806-819, December.

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