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Beyond Equilibrium: Revisiting Two-Sided Markets from an Agent-Based Modeling Perspective

Listed author(s):
  • Heinrich, Torsten
  • Gräbner, Claudius

Two-sided markets are an important aspect of today's economies. Yet, the attention they have received in economic theory is limited, mainly due to methodological constraints of conventional approaches: two-sided markets quickly lead to non-trivial dynamics that would require a computational approach, as analytical models quickly become intractable. One approach to this problem is to opt for models that operate on an aggregated level, abstracting from most of the (micro-level) causes of these non-trivial dynamics. Here we revisit a well known equilibrium model by Rochet and Tirole of two-sided markets that has taken this approach. Analyzing the model from an agent-based perspective, however, reveals several inconsistencies and implicit assumptions of the original model. This, together with the highly implausible assumptions that are required to make the model analytically tractable, limits its explanatory power significantly and motivates an alternative approach. The agent-based model we propose allows us to study the phenomenon of two-sided markets in a more realistic and adequate manner: Not only are we able to compare different decision making rules for the providers, we are also able to study situations with more than two providers.%We find that Thus, our model represents a first step towards a more realistic and policy-relevant study of two-sided markets.

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File URL: https://mpra.ub.uni-muenchen.de/67860/1/MPRA_paper_67860.pdf
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File URL: https://mpra.ub.uni-muenchen.de/76425/1/MPRA_paper_76425.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 67860.

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Date of creation: 13 Nov 2015
Handle: RePEc:pra:mprapa:67860
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  1. 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.
  2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
  3. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
  4. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
  5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
  6. Brian Arthur, W. & Ermoliev, Yu. M. & Kaniovski, Yu. M., 1987. "Path-dependent processes and the emergence of macro-structure," European Journal of Operational Research, Elsevier, vol. 30(3), pages 294-303, June.
  7. Bendor Jonathan & Mookherjee Dilip & Ray Debraj, 2001. "Reinforcement Learning in Repeated Interaction Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, March.
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