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Business-to-business bargaining in two-sided markets

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  • Adachi, Takanori
  • Tremblay, Mark J.

Abstract

Bargaining regularly takes place on the business-to-business side of two-sided markets. However, little is known about the consequences of these negotiations. In this paper, we allow the platform (or a policy maker) to choose between a standard design (offering posted prices to both sides) or a design with bargaining (offering a posted price to consumers and negotiating with at least some firms). We find that the platform pursues negotiations when it has a strong bargaining position and does so by targeting firms with the largest network effects. While this behavior may appear exploitive, we show that profits and welfare often align across platform designs. This alignment stems from how bargaining incentivizes the platform: Greater platform bargaining power allows the platform to extract more of the network surpluses, since it can convert more of the firm surplus into profits, and this incentivizes the platform to draw in greater participation (generating greater welfare). These results suggest that platform and policy maker preferences often align in this setting.

Suggested Citation

  • Adachi, Takanori & Tremblay, Mark J., 2020. "Business-to-business bargaining in two-sided markets," European Economic Review, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:eecrev:v:130:y:2020:i:c:s001429212030221x
    DOI: 10.1016/j.euroecorev.2020.103591
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    References listed on IDEAS

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    Cited by:

    1. Ellalee, Haider & Alali, Walid Y., 2022. "A Welfare and Pass-Through Effects of Regulations within Imperfect Competition," MPRA Paper 116512, University Library of Munich, Germany.
    2. Tremblay, Mark J. & Adachi, Takanori & Sato, Susumu, 2023. "Cournot platform competition with mixed-homing," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    3. Qiuyu Lu & Noriaki Matsushima, 2023. "Personalized pricing when consumers can purchase multiple items," ISER Discussion Paper 1192, Institute of Social and Economic Research, Osaka University.
    4. Qihong Liu & Daniel Nedelescu & Ji Gu, 2021. "The impact of strategic agents in two-sided markets," Journal of Economics, Springer, vol. 134(3), pages 195-218, December.
    5. Adachi, Takanori & Fabinger, Michal, 2022. "Pass-through, welfare, and incidence under imperfect competition," Journal of Public Economics, Elsevier, vol. 211(C).
    6. Akifumi Ishihara & Ryoko Oki, 2021. "Exclusive content in two‐sided markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 638-654, August.

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    More about this item

    Keywords

    Platforms; Indirect network externalities; Platform design; Nash bargaining;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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