Hybrid Platform Model: Monopolistic Competition and a Dominant Firm

Abstract

We model a platform controlling the variety and prices of the products it hosts via a percentage fee on sellers and choosing whether to sell its own products (hybrid mode). We derive a mixed market demand system for differentiated products with monopolistically competitive sellers and a sizeable platform product range. The hybrid platform steers consumers towards its products by charging higher seller fees than pure marketplace. This “insidious steering" intensifies the larger the platform's product footprint. Hybrid mode harms consumers compared to pure marketplace unless fringe entry is sufficiently inelastic.

Keywords: Trade platform, insidious steering, tax policy, hybrid model, regulation

JEL Classification: D42, L12, L13, L40, H25