Working Paper: CEPR ID: DP6214
Authors: Paul Belleflamme; Martin Peitz
Abstract: We analyze whether and how the fact that products are not sold on open or public platforms but on competing for-profit platforms affects sellers? investment incentives. Investments in cost reduction, quality, or marketing measures are here the joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are available in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes.
Keywords: intermediation; investment incentives; network effects; 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 |
|---|---|
| For-profit platforms (D26) | Seller incentives to innovate in cost reduction and quality improvements (O31) |
| For-profit platforms (D26) | Seller incentives to innovate in marketing innovations (O31) |
| For-profit platforms (sellers single-home, buyers multi-home) (D26) | Seller incentives to innovate across all types of investment (O31) |
| For-profit platforms (buyers single-home, sellers multi-home) (D26) | Seller incentives to innovate (O31) |