We analyze a model of imperfect price competition between intermediation service providers. We insist on features that are relevant for informational intermediation via the Internet: the presence of indirect network externalities, the possibility of using the nonexclusive services of several intermediaries, and the widespread practice of price discrimination based on users' identity and on usage. Efficient market structures emerge in equilibrium, as well as some specific form of inefficient structures. Intermediaries have incentives to propose non-exclusive services, as this moderates competition and allows them to exert market power. We analyze in detail the pricing and business strategies followed by intermediation service providers. Ultimately we're an information broker. On the left side we have lots of products; on the right side we have lots of customers. We're in the middle making the connections. The consequence is that we have two sets of customers: consumers looking for books and publishers looking for consumers. Readers find books or books find readers. Jeff Bezos, president and CEO, Amazon.com 1
We examine a price competition game between two intermediaries offering to match two sides of a market on the Internet. Competition is characterized by asymmetric network externalities.We account for some specificities of cybermediation, in particular access vs usage pricing and the possibility of using the services of several intermediaries. When only registration fees are used and agents register with at most one cybermediary, there exists an equilibrium where one firm corners the market with positive profits. Introducing either fees that are contingent on successful matching or the possibility of registration with two cybermediaries cancels the profit for equilibria where only one cybermediary receives all the demand. Other types of equilibria are discussed.
Competing Vertical Structures: Preconmitment and Renegotiation.We consider a mode! where two agents play a (normal form) game on behalf of two principals. We analyze the existence of precommitment effects through public announcement of contract, in a mode! where agency contracts, designed under incomplete information between principal and agent, can be secretly renegotiated. We show that the existence of precommitment effects depends both on the strategic complementarity of the agents' actions and on the direct effect of the opponent's action on each principal's welfare. In our mode!, the possibility of renegotiation is crucial for the existence of precommitment effects. Applications to the field of Industrial Organization are discussed.
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