Platform competition with partial multihoming under differentiation: a note

A model of a two-sided market with two horizontally differentiated platforms and multihoming on one side is developed. In contrast to recent contributions, it is shown that platforms do not necessarily generate all revenues on the multihoming side by charging a higher price. Also, whether platforms' pricing structures favor exclusivity over multihoming is ambiguous.multihoming

Platform Standards, Collusion and Quality Incentives

This paper examines how quality incentives are related to the interoperability of competing platforms. Platforms choose whether to operate standardised or exclusively, prior to quality and subsequent price competition. We find that platforms choose a common standard if they can coordinate their quality provision. The actual investment then depends on the cost of quality provision: If rather high, platforms refrain from investment; if rather low, platforms maintain vertically differentiated platforms. The latter case is socially more desirable than exclusivity where platforms do not invest. Nevertheless, quality competition of standardised platforms induces the highest investment and maximum welfare

Two-Sided Markets with Pecuniary and Participation Externalities

The existing literature on "two-sided markets" addresses participation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup differentiated platforms compete in advertising and offer consumers a service free of charge (such as a TV program) that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms benefit from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable.two-sided markets; broadcasting; advertising; market entry; digital television

Platform Standards, Collusion and Quality Incentives

This paper examines how quality incentives are related to the interoperability of competing platforms. Platforms choose whether to operate standardised or exclusively, prior to quality and subsequent price competition. We find that platforms choose a common standard if they can coordinate their quality provision. The actual investment then depends on the cost of quality provision: If rather high, platforms refrain from investment; if rather low, platforms maintain vertically differentiated platforms. The latter case is socially more desirable than exclusivity where platforms do not invest. Nevertheless, quality competition of standardised platforms induces the highest investment and maximum welfare.two-sided markets; standards; investment in transaction quality

Off-the-peak preferences over government size*

We study the political consequences of policy preferences which are non-symmetric around the peak. While the usual assumption of symmetric preferences is innocuous in political equilibria with plat-forms convergence, it is not neutral when candidates are differentiated. We show that a larger government size emerges when preferences of the median voter off-the-peak are more intense towards overprovision (what we call wasteful preferences), whereas a smaller government results when her preferences are more intense towards underprovision (scrooge preferences). We then analyze the determinants of preferences off-the-peak and find that: (i) The sign of the third derivative of the policy-induced utility function indicates whether preferences are wasteful (positive) or scrooge (negative). (ii) The analog of Kimball's coefficient of prudence can be used to measure degrees of wastefulness and scroogeness. (iii) Consumers' risk aversion and government decreasing effectiveness in producing the public good generate scrooge.Single-peaked preferences; citizen-candidate; coefficient of prudence; differentiated platforms; risk-aversion

Two-Sided Markets with Pecuniary and Participation Externalities

The existing literature on "two-sided markets" addresses participation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup differentiated platforms compete in advertising and offer consumers a service free of charge (such as a TV program) that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms benefit from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable

The Smartphone as the Incumbent “Thing” among the Internet of Things

The smartphone has been the ubiquitous computing platform in the past decade. However, emerging consumer Internet of Things (IoT) technology trends, such as smartwatches and smart speakers, promise the establishment of new ubiquitous platforms. We model two competing horizontally-differentiated platforms that each offer a smartphone and another smart device. This market diverges markedly from standard mixed bundling results when devices from the same vendor have super-additive utility. We show that the degree of a smart device’s differentiation (relative to the smartphone) is the prime factor determining if it is profitable to deepen integration between a smart device with the incumbent smartphone platform. We provide managerial insights for technology strategy

Retail Payment Systems: What can we Learn from Two-Sided Markets?

Some retail payment systems can be modelled as two-sided markets, where a payment system facilitates money exchanges between consumers on one side and merchants on the other. The system sets rules and standards, to ensure usage and acceptance of its payment instruments by consumers and merchants respectively. Some retail payment systems exhibit indirect network externalities, which is one of the main criteria used to define two-sided markets. As more consumers use the payment platform, more merchants are encouraged to join it. Conversely, the value of holding payment instruments increases with the number of merchants accepting them. The theory of two-sided markets contributes to a better understanding of these retail payment systems, by showing that an asymmetric allocation of costs is needed to maximise the volume of transactions. It also starts to offer results that could explain competition between payment platforms. However, this theory entails some limits to a thorough understanding of retail payment systems. Firstly, we show that some retail payment systems, such as credit transfer or direct debit systems, do not necessarily fulfil all the theoretical criteria used to define twosided markets. Moreover, this theory does not take into account specific features of the payment industry, such as risk management or fraud prevention. This leads us to propose new research directions.payment systems; two-sided markets; platform competition; payment cards

Two-Sided Markets with Pecuniary and Participation Externalities

The existing literature on "two-sided markets" addresses participation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup differentiated platforms compete in advertising and offer consumers a service free of charge (such as a TV program) that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms benefit from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable.two-sided markets, broadcasting, advertising, market entry, digital television

Platform Competition: The Role of Multi-homing and Complementors

In this paper we present a model of platform competition in which two firms offer horizontally differentiated platforms and a group of complementors offers products that are complementary to each platform. Consumers can buy either or both platforms (single- or multihoming) and complementors can produce for either or both platforms (single- or multi-production). We first characterize the pricing structure and find that, in equilibrium, consumers are more likely to multihome as the differentiation of platforms decreases or as the number of complementors for either platform increases. We show that the platform and its complementors always benefit from an increase in the number of complementors in their own platform. When single-homing arises in equilibrium, the platform and its complementors suffer from an increase in the number of complementors in the rival platform. We also study the incentives of the platform to integrate with its complementors, to charge them a royalty or give a subsidy, and to sell its own complementary products to the rival platform