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Intermediation and Investment Incentives

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  • Belleflamme, Paul
  • Peitz, Martin

Abstract

We analyze whether and how the fact that products are not sold on open or public platforms but on competing for-profit platforms affects sellers’ investment incentives. Investments in cost reduction, quality, or marketing measures are here the joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are available in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes.

Suggested Citation

  • Belleflamme, Paul & Peitz, Martin, 2007. "Intermediation and Investment Incentives," CEPR Discussion Papers 6214, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6214
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    References listed on IDEAS

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    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.
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    1. repec:ebl:ecbull:v:12:y:2007:i:7:p:1-8 is not listed on IDEAS

    More about this item

    Keywords

    intermediation; investment incentives; network effects; two-sided markets;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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