Competitive Bottlenecks and Platform Spillovers
Tat-How Teh, Julian WrightWe provide a general framework to analyze competition between oligopolistic platforms in competitive bottleneck settings, allowing for pricing and nonprice design choices by platforms, and post-participation buyer-seller decisions. We show that equilibrium choices by platforms are distorted against sellers’ interests in a way harmful to welfare (e.g., setting excessive commission fees), and that an increase in the number of competing platforms can exacerbate this distortion. We also characterize how buyer-side heterogeneity in interaction benefits, partial market coverage, platform asymmetry, and cross-platform spillovers further amplify or mitigate welfare distortions. Based on our findings, we discuss policy implications for mobile app platforms. (JEL D43, L13, L25, L96)