Journal article
Entry-deterring agency
Simon Loertscher, Andras Niedermayer
Games and Economic Behavior | Elsevier BV | Published : 2020
Abstract
We provide a model in which an intermediary can choose between wholesale or agency. The possibility that buyers and sellers transact directly limits his market power and, thus, creates incentives for him to deter the emergence of bilateral exchanges. In equilibrium, the intermediary chooses agency and thereby pre-empts the emergence of a competing bilateral exchange if the matching technology of the competing exchange is sufficiently efficient. For symmetric Pareto distributions, whenever agency is chosen in equilibrium, consumer and social surplus decrease while listing and transaction prices tend to increase. The predictions of our model are broadly consistent with empirical evidence.
Grants
Awarded by Deutsche Forschungsgemeinschaft
Funding Acknowledgements
The comments and suggestions of three anonymous referees and an Associate Editor of this journal have helped us improve the paper. This paper has also benefited from comments by and discussions with Luis Cabral, Arthur Campbell, Edwin Chan, Renato Gomes, Stephen King, Stephan Lauermann, Joao Montez, Martin Peitz, Patrick Rey, Michael Riordan, Larry Samuelson, Artyom Shneyerov and seminar audiences at the University of Mannheim. We also thank participants of AETW 2013 at UQ EARIE 2013 in Evora, SAET 2013 in Paris, the CLEEN Workshop in 2013, 110C 2013 in Boston, the MaCCI Annual Conference in 2013 in Mannheim, the SFB TR 15 meeting 2013 in Bonn, the 2015 ATE Symposium in Auckland, the Multi-Sided Platforms Workshop in 2015 in Singapore, the 2018 Melbourne 10 and Theory Day, the 2015 Workshop on Consumer Search in Bad Homburg, the 2018 CRESSE/JUFE Workshop in Nanchang, the 2018 ZJU International Conference on Industrial Economics in Hangzhou, the 2018 Annual Meeting of the Verein fur Socialpolitik in Freiburg, and the Conference in memoria of Artyom Shneyerov at Paris-Dauphine PSL in 2018 for helpful comments. The second author gratefully acknowledges funding by the Deutsche Forschungsgemeinschaft through SFB TR 15 and project PE 813/2-2. Financial support via a visiting research scholar grant from the Faculty of Business and Economics at the University of Melbourne and from the Samuel and June Hordern Endowment is also gratefully acknowledged. A previous version of the paper circulated under the title "Predatory Platforms".