Working Paper: CEPR ID: DP4657
Authors: Volker Nocke; Martin Peitz; Konrad O. Stahl
Abstract: We develop a general theoretical framework of trade on a platform on which buyers and sellers interact. The platform may be owned by a single large, or many small independent or vertically integrated intermediaries. There also may be free entry into the market for platform slots, or platform owners my form a club that restricts entry. We provide a positive and normative analysis of the impact of platform ownership structure on platform size. The strength of network effects is important in the ranking of ownership structures by induced equilibrium platform size and welfare. We develop an intuitive taxonomy of these towards developing our results. We show that while vertical integration may be welfare-enhancing if network effects are weak, monopoly platform ownership is socially preferred if they are strong. These are also the ownership structures likely to emerge.
Keywords: intermediation; network effects; product diversity; two-sided markets
JEL Codes: D40; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monopoly platform ownership (D42) | Larger platform size (C55) |
| Dispersed ownership structures (G34) | Smaller platform size (L25) |
| Strength of network effects (D85) | Efficacy of ownership structures in maximizing platform size (L25) |
| Vertical integration (L22) | Enhanced welfare (I38) |
| Strength of platform effects (C23) | Varying welfare effects of exclusion (H53) |