Competition and Coopetition for Two-Sided Platforms

Production and Operations Management

53 Pages Posted: 30 Aug 2017 Last revised: 6 Dec 2021

See all articles by Maxime C. Cohen

Maxime C. Cohen

Desautels Faculty of Management, McGill University

Renyu (Philip) Zhang

The Chinese University of Hong Kong; New York University Shanghai

Date Written: August 28, 2017

Abstract

Two-sided platforms have become omnipresent. 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 on both sides of the market. We assume that customers and workers each follow an endogenous generalized attraction 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 platforms, 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 practices 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 (platforms, riders, and drivers), especially when the platforms are facing intensive competition on the demand side. However, if the platforms are facing intensive competition on the supply side, the coopetition partnership may hurt the profit of at least one platform.

Keywords: Two-sided platforms, ride-sharing, coopetition, choice models

Suggested Citation

Cohen, Maxime C. and Zhang, Renyu, Competition and Coopetition for Two-Sided Platforms (August 28, 2017). Production and Operations Management, Available at SSRN: https://ssrn.com/abstract=3028138 or http://dx.doi.org/10.2139/ssrn.3028138

Maxime C. Cohen (Contact Author)

Desautels Faculty of Management, McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Renyu Zhang

The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong, Hong Kong
China

HOME PAGE: http://rphilipzhang.github.io/rphilipzhang/index.html

New York University Shanghai ( email )

1555 Century Avenue
Shanghai, 200122
China
86-21-20595135 (Phone)

HOME PAGE: http://rphilipzhang.github.io/rphilipzhang/index.html

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