Two-sided Markets,Competitive Bottlenecks and Exclusive Contracts |
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Authors: | Mark Armstrong Julian Wright |
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Institution: | (1) Department of Economics, University College London, London, WC1E 6BT, UK;(2) Department of Economics, National University of Singapore, Singapore, 117570, Singapore |
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Abstract: | We provide a framework for analyzing two-sided markets that allows for different degrees of product differentiation on each
side of the market. When platforms are viewed as homogenous by sellers but heterogeneous by buyers, we show that “competitive
bottlenecks” arise endogenously. In equilibrium, platforms do not compete directly for sellers, instead choosing to compete
indirectly by subsidizing buyers to join. Sellers are left with none of the gains from trade. Despite this, it is sellers
who choose to purchase from multiple platforms (multihome). Finally, the role of exclusive contracts to prevent multihoming
is explored.
We are very grateful to Jose Miguel Abito for research assistance, and to the editor and a referee for helpful comments. |
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Keywords: | Two-sided markets Network externalities Exclusive contracts |
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