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Platform Competition as Network Contestability

Author

Listed:
  • Robert P. Gilles

    (Queen's University Management School, Belfast, UK)

  • Dimitrios Diamantaras

    (Department of Economics, Temple University)

Abstract

Recent research in industrial organisation has investigated the essential place that middlemen have in the networks that make up our global economy. In this paper we attempt to understand how such middlemen compete with each other through a game theoretic analysis using novel techniques from decision-making under ambiguity. We model a purposely abstract and reduced model of one middleman who provides a two-sided platform, mediating surplus-creating interactions between two users. The middleman evaluates uncertain outcomes under positional ambiguity, taking into account the possibility of the emergence of an alternative middleman offering intermediary services to the two users. Surprisingly, we find many situations in which the middleman will purposely extract maximal gains from her position. Only if there is relatively low probability of devastating loss of business under competition, the middleman will adopt a more competitive attitude and extract less from her position.

Suggested Citation

  • Robert P. Gilles & Dimitrios Diamantaras, 2013. "Platform Competition as Network Contestability," DETU Working Papers 1303, Department of Economics, Temple University.
    • Handle: RePEc:tem:wpaper:1303
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    File URL: http://www.cla.temple.edu/RePEc/documents/DETU_13_03.pdf
    File Function: First version, 2013
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    Cited by:

    1. Gilles, Robert P. & Lazarova, Emiliya A. & Ruys, Pieter H.M., 2015. "Stability in a network economy: The role of institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 375-399.

    More about this item

    Keywords

    competition; middlemen; ambiguity; platform; two-sided market; market intermediation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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