Business-to-Business Bargaining in Two-Sided Markets

35 Pages Posted: 20 Jun 2019 Last revised: 13 Mar 2020

See all articles by Takanori Adachi

Takanori Adachi

Kyoto University - Graduate School of Management; Kyoto University - Graduate School of Economics

Mark J. Tremblay

Miami University

Date Written: March 11, 2020

Abstract

Negotiations regularly take place on the business-to-business side of two-sided markets. However, little is known about the consequences of these negotiations on a platform's design, pricing, participation, and welfare. In this paper, we propose a model where platforms choose between the standard design (offering posted prices to both sides) and the bargaining design (offering a posted price to consumers and negotiating with firms). We find that platforms implement the bargaining design only when its bargaining position is strong. We also find that (i) greater platform bargaining power increases welfare and (ii) that a platform's optimal design can coincide with the design that maximizes welfare. These findings suggest that platforms and policy makers often align. Finally, we extend our model to consider platform competition and show that an implemented bargaining design generates sub-optimal welfare only when platforms are competitive. This suggests that platform behavior that may be considered exploitive, is only implemented in a manner that is detrimental to welfare in markets where platform market power is already limited.

Keywords: Platforms, Indirect network externalities, Platform design, Nash bargaining, Platform competition

JEL Classification: D42, D43, D62, L12, L13, L22

Suggested Citation

Adachi, Takanori and Tremblay, Mark, Business-to-Business Bargaining in Two-Sided Markets (March 11, 2020). Available at SSRN: https://ssrn.com/abstract=3388383 or http://dx.doi.org/10.2139/ssrn.3388383

Takanori Adachi (Contact Author)

Kyoto University - Graduate School of Management ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Kyoto University - Graduate School of Economics ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Mark Tremblay

Miami University ( email )

208 Laws Hall
Oxford, OH 45056
United States

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