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Games 2016, 7(3), 17; doi:10.3390/g7030017

Vertical Relationships within Platform Marketplaces

Department of Economics, McMaster University, Hamilton, ON, L8S 4M4, Canada
Academic Editor: Ulrich Berger
Received: 6 April 2016 / Revised: 22 June 2016 / Accepted: 29 June 2016 / Published: 12 July 2016
(This article belongs to the Special Issue Game Theoretic Analyses of Multi-Sided Markets)
View Full-Text   |   Download PDF [237 KB, uploaded 12 July 2016]

Abstract

In two-sided markets a platform allows consumers and sellers to interact by creating sub-markets within the platform marketplace. For example, Amazon has sub-markets for all of the different product categories available on its site, and smartphones have sub-markets for different types of applications (gaming apps, weather apps, map apps, ridesharing apps, etc.). The network benefits between consumers and sellers depend on the mode of competition within the sub-markets: more competition between sellers lowers product prices, increases the surplus consumers receive from a sub-market, and makes platform membership more desirable for consumers. However, more competition also lowers profits for a seller which makes platform membership less desirable for a seller and reduces seller entry and the number of sub-markets available on the platform marketplace. This dynamic between seller competition within a sub-market and agents’ network benefits leads to platform pricing strategies, participation decisions by consumers and sellers, and welfare results that depend on the mode of competition. Thus, the sub-market structure is important when investigating platform marketplaces. View Full-Text
Keywords: platforms and two-sided markets; platform sub-markets; platform marketplaces; online marketplaces; digital marketplaces; network externalities platforms and two-sided markets; platform sub-markets; platform marketplaces; online marketplaces; digital marketplaces; network externalities
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Tremblay, M.J. Vertical Relationships within Platform Marketplaces. Games 2016, 7, 17.

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