Chicken and Egg: Competing Matchmakers

61 Pages Posted: 7 Aug 2001

See all articles by Bernard Caillaud

Bernard Caillaud

CERAS-ENPC; Centre for Economic Policy Research (CEPR)

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2001

Abstract

We examine a Bertrand competition game between two intermediaries offering matching services between two sides of a market. Indirect network externalities arise as the probability of finding one's match with a given intermediary increase with the number of agents of the other side who use the services of this intermediary. We formalise some specificities of intermediation on the Internet by allowing registration and transaction prices, and multiple registration. When only registration fees are used and agents register to at most one cybermediary, there exists an equilibrium where one firm corners the market with positive profits, as well as zero profit equilibria where the firms share the market. Introducing either fees that are contingent on successful matching or the possibility of registration with two intermediaries drastically reduces the profits of a dominant firm. Moreover, with multiple registration, new types of positive-profit equilibria emerge where both matchmakers are active and one side of the market registers with both cybermediaries.

Keywords: Intermediation, network externalities, matching, Internet, competition

JEL Classification: D40, D83, L10, L13, L15, L86

Suggested Citation

Caillaud, Bernard and Jullien, Bruno, Chicken and Egg: Competing Matchmakers (July 2001). Available at SSRN: https://ssrn.com/abstract=278562

Bernard Caillaud (Contact Author)

CERAS-ENPC ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 44 58 28 75 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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