Competition and Coopetition for Two-sided Platforms
46 Pages Posted: 30 Aug 2017 Last revised: 10 Aug 2018
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 their prices and wages to compete for both sides of the market. We assume that customers and workers each follow a Multinomial Logit choice model (our results also extend to more general models), and show that a unique equilibrium exists and can be obtained 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, i.e., 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 will benefit every single party in the market (riders, drivers, and both platforms).
Keywords: Two-sided platforms, ride-sharing, coopetition, choice models
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