Intermediation and investment incentives

Paul Belleflamme () and Martin Peitz

No 2006048, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We analyze whether and how the fact that products are not sold on free, public, platforms but on competing for-profit platforms affects sellersÕ investment incentives. Investments in cost reduction, quality, or marketing measures are here to joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are availale in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes

Keywords: Two-Sided Maarkets; Network Effects; Intermediation; Investment Incentives (search for similar items in EconPapers)
JEL-codes: L10 D40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
Date: 2006-09-15
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Related works:
Working Paper: Intermediation and Investment Incentives (2007)
Working Paper: Intermediation and investment incentives (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:ctl:louvec:2006048

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