Competition and Coopetition for Two-Sided Platforms
48 Pages Posted: 30 Aug 2017 Last revised: 1 Nov 2019
Date Written: August 28, 2017
Two-sided platforms have become omnipresent (e.g., ride-sharing and on-demand delivery services). In this context, firms compete not only for customers but also for flexible self-scheduling workers who can work for multiple platforms. We consider a setting where two-sided platforms simultaneously choose prices and wages to compete for both sides of the market. We assume that customers and workers each follow an endogenous Multinomial Logit choice model that accounts for network effects. In our model, the behavior of an agent depends not only on the price or wage set by the platform, but also on the strategic interactions among agents on both sides of the market. We show that a unique equilibrium exists and that it can be computed using a tatonnement scheme. The proof technique for the competition between two-sided platforms is not a simple extension of the traditional (one-sided) setting and involves different arguments. Armed with this result, we study the impact of coopetition between two-sided platforms, that is, the business strategy of cooperating with competitors. Motivated by recent practice in the ride-sharing industry, we analyze a setting where two competing platforms engage in a profit sharing contract by introducing a new joint service. We show that a well-designed profit sharing contract (e.g., under Nash bargaining) will benefit every party in the market (both platforms, riders, and drivers).
Keywords: Two-sided platforms, ride-sharing, coopetition, choice models
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