Platform Intermediation in a Market for Differentiated Products

Tinbergen Institute Discussion Paper No. 2008-020/1

24 Pages Posted: 26 Feb 2008

See all articles by Andrea Galeotti

Andrea Galeotti

University of Essex

José L. Moraga-González

VU University Amsterdam; University of Groningen

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the unique subgame perfect equilibrium of the game, the platform fully internalizes the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers retain part of the economic rents. The market allocation is constraint efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.

Keywords: Two-sided markets, network externalities, intermediation, advertising

JEL Classification: L12, L13, D42, D43

Suggested Citation

Galeotti, Andrea and Moraga-Gonzalez, Jose Luis, Platform Intermediation in a Market for Differentiated Products (February 2008). Tinbergen Institute Discussion Paper No. 2008-020/1, Available at SSRN: https://ssrn.com/abstract=1098180 or http://dx.doi.org/10.2139/ssrn.1098180

Andrea Galeotti (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Jose Luis Moraga-Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

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