This paper develops a framework to analyze platform competition in two-sided markets in which agents endogenously decide on which side of a platform to join. We characterize the equilibrium pricing structure and perform a comparative statics analysis on how the distribution of agents’ preferences affects the platforms’ profits. We also show that the market equilibrium under profit-maximizing platforms leads to the first best social surplus, which illustrates the importance of the price mechanism to induce more balanced participation across the two sides. This framework can be applied to analyze market competition for “rental” or “sharing” platforms. In addition, we extend our analysis to consider an initial investment stage, which makes participants the owner of some durable goods to rent out.
Bibliographical noteFunding Information:
We thank the Coeditor Martin Peitz, an anonymous referee, and participants in various conferences and seminars for valuable discussions and comments. Jay Pil Choi was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF‐2016S1A5A2A01022389). Yusuke Zennyo gratefully acknowledges financial support from JSPS Grant‐in‐Aid for Young Scientists (B) No. 16K17126 and JSPS Grant‐in‐Aid for Scientific Research (A) No. 17H00959.
JSPS Grant‐in‐Aid for Young Scientists, Grant/Award Number: 16K17126; Grant‐in‐Aid for Scientific Research, Grant/Award Number: 17H00959; Ministry of Education of the Republic of Korea and the National Research Foundation of Korea, Grant/Award Number: NRF‐2016S1A5A2A01022389; Ministry of Education of the Republic of Korea; National Research Foundation of Korea
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All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Economics and Econometrics
- Strategy and Management
- Management of Technology and Innovation