Intermediation and Investment Incentives

32 Pages Posted: 22 May 2008

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Martin Peitz

University of Mannheim - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

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.

Keywords: Intermediation, investment incentives, network effects, two-sided markets

JEL Classification: D40, L10

Suggested Citation

Belleflamme, Paul and Peitz, Martin, Intermediation and Investment Incentives (March 2007). , Vol. , pp. -, 2007. Available at SSRN: https://ssrn.com/abstract=1135456

Paul Belleflamme (Contact Author)

CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Martin Peitz

University of Mannheim - Department of Economics ( email )

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Germany
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HOME PAGE: http://peitz.vwl.uni-mannheim.de/

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