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Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers

Author

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  • Karle, Heiko
  • Peitz, Martin
  • Reisinger, Markus

Abstract

For many products, platforms enable sellers to transact with buyers. We show that the competitive conditions among sellers shape the market structure in platform industries. If product market competition is tough, sellers avoid competitors by joining different platforms. This allows platforms to sustain high fees and explains why, for example, in some online markets, several homogeneous platforms segment the market. Instead, if product market competition is soft, agglomeration on a single platform emerges, and platforms fight for the dominant position. These insights give rise to novel predictions. For instance, market concentration and fees are negatively correlated in platform industries, which inverts the standard logic of competition.

Suggested Citation

  • Karle, Heiko & Peitz, Martin & Reisinger, Markus, 2017. "Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers," CEPR Discussion Papers 12435, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12435
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:jemstr:v:28:y:2019:i:1:p:5-22 is not listed on IDEAS
    2. Paul Belleflamme & Martin Peitz, 2019. "Managing competition on a two‐sided platform," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 5-22, January.
    3. Janssen, Maarten & Shelegia, Sandro, 2017. "Beliefs and Consumer Search in a Vertical Industry," MPRA Paper 85134, University Library of Munich, Germany.

    More about this item

    Keywords

    endogenous segmentation; intermediation; market structure; price competition; Two-sided markets;

    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

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