The Impact of Strategic Agents in Two-Sided Markets

Forthcoming, Journal of Economics

25 Pages Posted: 9 Jun 2016 Last revised: 6 Jul 2021

See all articles by Qihong Liu

Qihong Liu

University of Oklahoma - Department of Economics

Daniel Nedelescu

University of Oklahoma - Department of Economics

Ji Gu

University of Oklahoma - Department of Economics

Date Written: June 10, 2021

Abstract

This paper introduces strategic agents into a two-sided market. We model strategic agents as advertisers who can invest in ad quality, which in turn affects readers, platforms and themselves. When platforms can choose prices on both the reader side and the advertiser side, strategic agents intensify competition, leading to lower prices and profits for the platforms. However, when prices on the reader side are restricted to be zero, equilibrium prices on the advertiser side can be higher or lower under strategic agents. We also investigate the interplay between strategic agents and platform asymmetry, and analyze platforms' incentive to invest in content quality. Our results suggest that strategic agents increases the degree of platform asymmetry and make it harder for the disadvantaged platform to compete. However, strategic agents may raise or lower platforms' incentive to invest in content quality.

Keywords: Two-sided media markets; Strategic agents; Ad quality; Platform asymmetry; Content quality.

JEL Classification: D43; L13

Suggested Citation

Liu, Qihong and Nedelescu, Daniel and Gu, Ji, The Impact of Strategic Agents in Two-Sided Markets (June 10, 2021). Forthcoming, Journal of Economics, Available at SSRN: https://ssrn.com/abstract=2791735 or http://dx.doi.org/10.2139/ssrn.2791735

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)

HOME PAGE: http://qliu.oucreate.com

Daniel Nedelescu

University of Oklahoma - Department of Economics ( email )

308 Cate Center Drive
Room 323
Norman, OK 73019-2103
United States

Ji Gu

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States

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