A Preference-Based Model of Platform Competition
University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 486
21 Pages Posted: 14 Jan 2022
Date Written: January 12, 2022
Abstract
We study platform competition by modeling the preferences of a "representative buyer" over the services platforms provide and the commodities they intermediate. This captures an intensive margin of buyers' participation which is neglected by the canonical setting and delivers a welfare measure of platform quality. Assuming that sellers offer a large variety of commodities under monopolistic competition and free entry, in contrast to previous results we find that in a duopoly setting strategically chosen commissions (whose value depends on sellers' expenditure share and demand elasticity) actually worsen buyers' welfare, which improves if platforms set commissions in advance of sellers' entry.
Keywords: D11, L13, L41, L51
JEL Classification: platform competition, market intermediation, exchange commissions
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