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Two sided markets, competitive bottlenecks and exclusive contracts

Armstrong, M.; Wright, J.; (2005) Two sided markets, competitive bottlenecks and exclusive contracts. (ELSE Working Papers 124). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

We provide a framework for analyzing two-sided markets that allows for different degrees of product differentiation on each side of the market. When platforms are viewed as homogenous by sellers but heterogeneous by buyers, we show that “competitive bottlenecks” arise endogenously. In equilibrium, platforms do not compete directly for sellers, instead choosing to compete indirectly by subsidizing buyers to join. Sellers are left with none of the gains from trade. Despite this, it is sellers who choose to purchase from multiple platforms (multihome). Finally, the role of exclusive contracts to prevent multihoming is explored.

Type: Working / discussion paper
Title: Two sided markets, competitive bottlenecks and exclusive contracts
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php
Language: English
Additional information: Please see http://eprints.ucl.ac.uk/15097/ for details of the version published in the journal 'Economic Theory'
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14561
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