Platforms and Intermediaries
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Beschreibung
Platforms and intermediaries connecting two groups of market participants such as buyers and sellers or software developers and software users play an important role in todays economy. This thesis analyzes economic interactions in markets with platforms and intermediaries. Chapter 1 summarizes the findings of Chapters 2, 3, and 4.
In Chapter 2 we consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product diversity may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft's operating system.
Chapter 3 analyzes a situation with a firm A initially owning a software platform (e.g. operating system) and an application for this platform. The specific knowledge of another firm B is needed to make the platform successful by creating a further application. When B's application is completed, A has incentives to expropriate the rents. Netscape claimed e.g. that this was the case with its browser running on MS Windows. We will argue that open sourcing or standardizing the platform is a warranty for B against expropriation of rents. The different pieces of software are considered as assets in the sense of the property rights literature (see Hart and Moore (Journal of Political Economy, 1990)). Two cases of joint ownership are considered beyond the standard cases of integration and non-integration: platform standardization (both parties can veto changes) and open source (no veto rights). In line with the literature, the more important a party's specific investments the more rights it should have. In contrast to Hart and Moore, however, joint ownership can be optimal in our setting. Open source is optimal if investments in the applications are more important than in the platform. The results are driven by the fact that in our model firms invest in physical (and not in human) capital and that there is non-rivalry in consumption for software.
In many industries intermediaries do not set prices. Instead they charge a commission or percentage fee levied on the price which is set by the seller. Examples include intermediaries in housing and real estate markets, art galleries, and intermediaries in high-skill labor markets. Empirically, these percentage fees exhibit very little variance across geographically and economically different markets and over time. Despite their wide-spread use and economic significance, surprisingly little research has been devoted to the questions what determines intermediaries' percentage fees and why intermediaries use percentage fees instead of price setting. In Chapter 4, we make a first step towards filling this gap. We restrict our attention to mechanisms that treat all buyers as one entity. In a Bayesian setup with n buyers, one seller and one intermediary, we show that setting percentage fees is an optimal mechanism in a certain class of mechanisms if and only if the seller's cost is drawn from a power distribution. Under the very same conditions when percentage fees are optimal, they are also independent of the number of buyers and the distribution of their valuations. Further, we show that price setting is not optimal if the distributions of the valuations and the cost fulfill regularity assumptions, but it is optimal if the seller's cost is deterministic.
Autor*in
Andras Niedermayer
Themen in »Platforms and Intermediaries«
incomplete contracts intermediaries open platforms percentage fees software applications