IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/15204.html
   My bibliography  Save this paper

The tension between market shares and profit under platform competition

Author

Listed:
  • Peitz, Martin
  • Belleflamme, Paul
  • Toulemonde, Eric

Abstract

We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets.

Suggested Citation

  • Peitz, Martin & Belleflamme, Paul & Toulemonde, Eric, 2020. "The tension between market shares and profit under platform competition," CEPR Discussion Papers 15204, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15204
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP15204
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
    2. Attila Ambrus & Rossella Argenziano, 2009. "Asymmetric Networks in Two-Sided Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 17-52, February.
    3. Viecens, María Fernanda, 2006. "Two-sided platforms with endogenous quality differentiation," UC3M Working papers. Economics we061204, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    5. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    6. Belleflamme, Paul & Peitz, Martin, 2019. "Platform competition: Who benefits from multihoming?," International Journal of Industrial Organization, Elsevier, vol. 64(C), pages 1-26.
    7. Gabszewicz, Jean J. & Wauthy, Xavier Y., 2012. "Nesting horizontal and vertical differentiation," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 998-1002.
    8. Jens-Uwe Franck & Martin Peitz, 2021. "Market Definition in the Platform Economy," CRC TR 224 Discussion Paper Series crctr224_2020_259, University of Bonn and University of Mannheim, Germany.
    9. Anderson, Simon P. & Peitz, Martin, 2020. "Media see-saws: Winners and losers in platform markets," Journal of Economic Theory, Elsevier, vol. 186(C).
    10. Andrei Hagiu, 2006. "Pricing and Commitment by Two-Sided Platforms," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 720-737, Autumn.
    11. Sato, Susumu, 2021. "Market shares and profits in two-sided markets," Economics Letters, Elsevier, vol. 207(C).
    12. repec:hrv:faseco:4589709 is not listed on IDEAS
    13. Simon P. Anderson & André de Palma, 2001. "Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods too Low?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 113-135, June.
    14. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 353-380, August.
    15. Gabszewicz, Jean J. & Wauthy, Xavier Y., 2014. "Vertical product differentiation and two-sided markets," Economics Letters, Elsevier, vol. 123(1), pages 58-61.
    16. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    17. Jens-Uwe Franck & Martin Peitz, 2021. "Market Definition in the Platform Economy," CRC TR 224 Discussion Paper Series crctr224_2021_259v2, University of Bonn and University of Mannheim, Germany.
    18. Bruno Jullien & Alessandro Pavan, 2019. "Information Management and Pricing in Platform Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(4), pages 1666-1703.
    19. Guofu Tan & Junjie Zhou, 2021. "The Effects of Competition and Entry in Multi-sided Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 1002-1030.
    20. Yannis Bakos & Hanna Halaburda, 2020. "Platform Competition with Multihoming on Both Sides: Subsidize or Not?," Management Science, INFORMS, vol. 66(12), pages 5599-5607, December.
    21. Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
    22. Ponce, Jorge, 2012. "The quality of credit ratings: A two-sided market perspective," Economic Systems, Elsevier, vol. 36(2), pages 294-306.
    23. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    24. Andrei Hagiu, 2006. "Pricing and commitment by two‐sided platforms," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 720-737, September.
    25. Jens-Uwe Franck & Martin Peitz, 2021. "Market Definition in the Platform Economy," CRC TR 224 Discussion Paper Series crctr224_2021_259, University of Bonn and University of Mannheim, Germany.
    26. Wright Julian, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-21, March.
    27. Paul Belleflamme & Eric Toulemonde, 2018. "Tax incidence on competing two‐sided platforms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 9-21, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    2. Sato, Susumu, 2021. "Market shares and profits in two-sided markets," Economics Letters, Elsevier, vol. 207(C).
    3. Biancini, Sara & Verdier, Marianne, 2023. "Bank-platform competition in the credit market," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    4. Wang, Xintong & Xue, Jingguo & Hou, Xueliang, 2023. "Barriers analysis to Chinese waste photovoltaic module recycling under the background of "double carbon"," Renewable Energy, Elsevier, vol. 214(C), pages 39-54.
    5. Tremblay, Mark J. & Adachi, Takanori & Sato, Susumu, 2023. "Cournot platform competition with mixed-homing," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    6. Giovannetti, Emanuele & Siciliani, Paolo, 2023. "Platform Competition and Incumbency Advantage under Heterogeneous Lock-in effects," Information Economics and Policy, Elsevier, vol. 63(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    2. Jan Frederic Nerbel & Markus Kreutzer, 2023. "Digital platform ecosystems in flux: From proprietary digital platforms to wide-spanning ecosystems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-20, December.
    3. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    4. Martin Peitz, 2023. "Governance and Regulation of Platforms," CRC TR 224 Discussion Paper Series crctr224_2023_480, University of Bonn and University of Mannheim, Germany.
    5. Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    6. Tremblay, Mark J. & Adachi, Takanori & Sato, Susumu, 2023. "Cournot platform competition with mixed-homing," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    7. Yang Geng & Yulin Zhang & Jing Li, 2023. "Two-sided competition, platform services and online shopping market structure," Journal of Economics, Springer, vol. 138(2), pages 95-127, March.
    8. Wang, Jin, 2021. "Do birds of a feather flock together? Platform’s quality screening and end-users’ choices theory and empirical study of online trading platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    9. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    10. Kawaguchi, Kohei & Kuroda, Toshifumi & Sato, Susumu, 2023. "Relevant markets and market power of mobile apps," Japan and the World Economy, Elsevier, vol. 67(C).
    11. Adachi, Takanori & Tremblay, Mark J., 2020. "Business-to-business bargaining in two-sided markets," European Economic Review, Elsevier, vol. 130(C).
    12. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    13. Hui Li & Feng Zhu, 2021. "Information Transparency, Multihoming, and Platform Competition: A Natural Experiment in the Daily Deals Market," Management Science, INFORMS, vol. 67(7), pages 4384-4407, July.
    14. Saruta, Fuyuki, 2021. "Exclusive contracts and multihoming agents in two-sided markets," MPRA Paper 110070, University Library of Munich, Germany.
    15. Filistrucchi, L. & Gerardin, D. & van Damme, E.E.C. & Keunen, S. & Klein, T.J. & Michielsen, T.O. & Wileur, J., 2010. "Mergers in Two-Sided Markets - A Report to the NMa," Other publications TiSEM f901d1fe-8878-444e-a685-8, Tilburg University, School of Economics and Management.
    16. Lapo Filistrucchi & Damien Geradin & Eric van Damme, 2012. "Identifying Two-Sided Markets," Working Papers - Economics wp2012_01.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    17. Wang, Shiying & Chen, Huimiao & Wu, Desheng, 2019. "Regulating platform competition in two-sided markets under the O2O era," International Journal of Production Economics, Elsevier, vol. 215(C), pages 131-143.
    18. Justus Haucap & Torben Stühmeier, 2016. "Competition and antitrust in Internet markets," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 9, pages 183-210, Edward Elgar Publishing.
    19. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    20. Wilfred Amaldoss & Jinzhao Du & Woochoel Shin, 2021. "Media Platforms’ Content Provision Strategies and Sources of Profits," Marketing Science, INFORMS, vol. 40(3), pages 527-547, May.

    More about this item

    Keywords

    Two-sided platforms; Market share; market power; Oligopoly; Network effects; Antitrust;
    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:15204. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.