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Competing for contacts: network competition, trade intermediation and fragmented duopoly

Petropoulou, Dimitra (2008) Competing for contacts: network competition, trade intermediation and fragmented duopoly. CEPDP, 854. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 9780853282488

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Abstract

A two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolistic service providers to some contacts but duopolists over contacts they share in their network overlap. the intermediaries' inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2008 Dimitra Petropoulou
Library of Congress subject classification: H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: F - International Economics > F1 - Trade > F10 - General
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 854
Date Deposited: 18 Jul 2008 10:19
URL: http://eprints.lse.ac.uk/19630/

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