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Platform investment and seller competition in two-sided markets

Author

Listed:
  • Francesco Angelini

    (University of Bologna)

  • Massimiliano Castellani

    (University of Bologna)

  • Lorenzo Zirulia

    (University of Milan
    Università “L. Bocconi”)

Abstract

Platforms can create value within their ecosystems through their investments. In this paper, we model a monopolistic platform choosing the level of a demand-enhancing investment and the membership fees that sellers and buyers pay to access the platform. We find that platform size and quality are large when the degree of product differentiation among sellers and investment productivity are high. Platform profit and users’ surplus are aligned. If the platform sells a product under its brand, incentives to invest are higher, compared to a pure marketplace, and sellers’ surplus can be larger if the degree of product differentiation is low.

Suggested Citation

  • Francesco Angelini & Massimiliano Castellani & Lorenzo Zirulia, 2025. "Platform investment and seller competition in two-sided markets," Journal of Economics, Springer, vol. 144(1), pages 1-29, January.
    • Handle: RePEc:kap:jeczfn:v:144:y:2025:i:1:d:10.1007_s00712-024-00874-x
    DOI: 10.1007/s00712-024-00874-x
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    More about this item

    Keywords

    Two-sided markets; Platform investment; Competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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