Essays in two-sided platforms
Year: 2008
Type: dissertation
Abstract: In the first chapter we present a critical survey of the literature on platforms \nand two-sided markets. First, we introduce two general models, called the “Armstrong’s \nmodel” and the “Rochet-Tirole’s model”, to understand the main issues \nthat arise in the literature. Second, we analyze some of the main assumptions of \nthe above models. Finally, we review some articles related to specific markets and \nto competition policy issues. \nIn the second chapter we study software platforms for which the total amount \nthat users spend depends on the two-sided pricing strategy of the platform firm, \nand on the pricing strategy of application developers. When setting prices, developers \nmay be constrained by one of two margins: the demand margin and the \ncompetition margin. By analyzing how these margins affect pricing strategies we \nfind some conditions which explain features of the market of operating systems and \nits differences with the one corresponding to the video consoles. The problem that \narises when the platform does not set prices (as an open platform) is considered. \nWe show that policy makers should promote open source in operating systems platforms \nbut not necessarily in video consoles. We also analyze the incentives for a \nplatform to integrate with applications as a function of the extent of substitutability \namong them and provide a possible explanation for the observed fact of vertical \ndisintegration in these industries. \nThird chapter analyzes the effect of firm dominance on the incentives to become \ncompatible and how compatibility decisions affect investment incentives. We will \nconsider compatibility in two dimensions: compatibility of the complementary good \nand inter-network compatibility. We show that if products are substitutes, compatibility \ntends to be welfare decreasing with the potential negative consequences \nof increasing compatibility being more likely when asymmetries are strong. We \nalso find that in many instances the dominant firm’s interests regarding compatibility \nare in line with those of users, and are opposite to those of the weak firm, \nwhich will always demand more compatibility to be enforced. Finally we show that \ncompatibility may harm innovation, particularly for the dominant firm. \nIn the fourth chapter we construct a simple model of platform price competition \nwith two main novel features. First, platforms endogenously decide the quality of \ntheir ‘access service’ and second, each group exhibits preferences not only about \nthe number of agents in the other side of the market, but also about their type or \nquality. Additionally, sellers may also care about the type of agents in their own \nside. Our interest is to examine the set of conditions under which, in spite of the \npresence of network effects, more than one platform coexist in the market. We \nshow that although there are two ex-ante identical platforms, in equilibrium they \ncould be asymmetric in quality and profits. In particular, buyers prefer a market \noutcome in which two different quality platforms are present
Author: María Fernanda Viecens
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1489415874