Abstract: In this paper, I study competition between large sellers operating on a two-sided platform. The traditional analysis of seller competition on platforms assumes ‘naive’ firms that do not internalise the impact of their decisions on the number of buyers that enter the platform. With an exogenous number of sellers, I study seller incentives on the platform with large ‘sophisticated’ sellers, who internalise the effect of their choices on buyer entry. I show that the analysis with naive sellers may underestimate buyer entry and platform profits, while overestimating product prices. I also show that an introduction of the platform’s own product benefits consumers at the expense of third-party sellers, due to a higher commission rate on third-party sellers and lower product prices for consumers.
Coauthor(s): Flavio Toxvaerd
Abstract: We analyse an overlapping generations model of manufacturer certification in durable goods markets with asymmetric information about the quality of used goods. The functioning of second-hand markets has two effects on markets for new goods, a substitution and a resale value effect. Through certification, manufacturers reduce adverse selection in second-hand markets and extract resulting rents through the markets for new goods. Certification may increase profits at the expense of social welfare, by increasing average quality while decreasing trading volume. Manufacturers may be willing to subsidise certification to increase profits on new goods and thus have an advantage over third-party certifiers.
Coauthor(s): Flavio Toxvaerd, Yi Wei
Abstract: We study collusive agreements in an infinite-horizon model in which firms invest in inventories of intermediate goods and compete in quantities of final goods. Stocks of inventories act as capacity constraints at the time of production, but can be replenished for future use through investment. Input stocks simultaneously impact firms’ incentives to deviate from collusive agreements and their ability to punish such deviations and therefore have ambiguous effects on the sustainability of collusion. We characterize subgame perfect equilibria in grim trigger strategies in which firms potentially hold asymmetric excess inventories on the collusive path. We show that the sustainability of collusive agreements is non-monotone in inventory stocks. While holding excess capacity is costly and unproductive, the practice can improve firms’ ability to sustain anticompetitive agreements.