Segmentation Versus Agglomeration: Competition between Platforms with Competitive Sellers

72 Pages Posted: 17 Nov 2017

See all articles by Heiko Karle

Heiko Karle

Frankfurt School of Finance and Management

Martin Peitz

University of Mannheim - Department of Economics

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 2017

Abstract

For many products, platforms enable sellers to transact with buyers. We show that the competitive conditions among sellers shape the market structure in platform industries. If product market competition is tough, sellers avoid competitors by joining different platforms. This allows platforms to sustain high fees and explains why, for example, in some online markets, several homogeneous platforms segment the market. Instead, if product market competition is soft, agglomeration on a single platform emerges, and platforms fi ght for the dominant position. These insights give rise to novel predictions. For instance, market concentration and fees are negatively correlated in platform industries, which inverts the standard logic of competition.

Keywords: endogenous segmentation, intermediation, market structure, price competition, Two-sided markets

JEL Classification: D43, L13

Suggested Citation

Karle, Heiko and Peitz, Martin and Reisinger, Markus, Segmentation Versus Agglomeration: Competition between Platforms with Competitive Sellers (November 2017). CEPR Discussion Paper No. DP12435. Available at SSRN: https://ssrn.com/abstract=3071067

Heiko Karle (Contact Author)

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Martin Peitz

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181-1835 (Phone)

HOME PAGE: http://peitz.vwl.uni-mannheim.de/

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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