Publication:
Essays in two-sided platforms

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2008-07
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2008-09-18
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In the first chapter we present a critical survey of the literature on platforms and two-sided markets. First, we introduce two general models, called the “Armstrong’s model” and the “Rochet-Tirole’s model”, to understand the main issues that arise in the literature. Second, we analyze some of the main assumptions of the above models. Finally, we review some articles related to specific markets and to competition policy issues. In the second chapter we study software platforms for which the total amount that users spend depends on the two-sided pricing strategy of the platform firm, and on the pricing strategy of application developers. When setting prices, developers may be constrained by one of two margins: the demand margin and the competition margin. By analyzing how these margins affect pricing strategies we find some conditions which explain features of the market of operating systems and its differences with the one corresponding to the video consoles. The problem that arises when the platform does not set prices (as an open platform) is considered. We show that policy makers should promote open source in operating systems platforms but not necessarily in video consoles. We also analyze the incentives for a platform to integrate with applications as a function of the extent of substitutability among them and provide a possible explanation for the observed fact of vertical disintegration in these industries. Third chapter analyzes the effect of firm dominance on the incentives to become compatible and how compatibility decisions affect investment incentives. We will consider compatibility in two dimensions: compatibility of the complementary good and inter-network compatibility. We show that if products are substitutes, compatibility tends to be welfare decreasing with the potential negative consequences of increasing compatibility being more likely when asymmetries are strong. We also find that in many instances the dominant firm’s interests regarding compatibility are in line with those of users, and are opposite to those of the weak firm, which will always demand more compatibility to be enforced. Finally we show that compatibility may harm innovation, particularly for the dominant firm. In the fourth chapter we construct a simple model of platform price competition with two main novel features. First, platforms endogenously decide the quality of their ‘access service’ and second, each group exhibits preferences not only about the number of agents in the other side of the market, but also about their type or quality. Additionally, sellers may also care about the type of agents in their own side. Our interest is to examine the set of conditions under which, in spite of the presence of network effects, more than one platform coexist in the market. We show that although there are two ex-ante identical platforms, in equilibrium they could be asymmetric in quality and profits. In particular, buyers prefer a market outcome in which two different quality platforms are present
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Mercados, Investigación de mercados
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